Mid-Year Match Reduction

[Guest gpr]

A company is considering reducing the match formula mid-year, and at the same time changing the definition of comp. to exclude certain types of pay (ex: bonuses). Match is currently calculated and funded once per month, and the change is not anticipated to be retroactive (could it be?). Do both of these fall under the reduction in benefit rules (ie, does the prior match have to be 100% vested now)? Are there other considerations that must be made (I am anticipating ACP testing to be fun)?

[MWeddell]

The regulations under 411(d)(6) pretty clearly imply that the conditions for receiving an allocation of contributions or forfeitures is a protected feature that can't be retroactively changed. Thus one cannot change the conditions for receiving a contribution retroactively. This would include a retroactive change in the compensation definition for contribution allocations to the extent that that would cause a decrease in contributions for any participant.

Under most plan documents, changing the matching amount retroactively won't be allowed. However, if the document was carefully drafted with this in mind, then language regarding the amount paid for the match might have been separated from the allocation among participants of the amount, if any, that the employer decided to contribute for the match. If that's the case, then a retroactive change in the employer's policy regarding how much is funded for the match without a change in the plan's allocation formula wouldn't violate 411(d)(6)'s regulations. (I'd advise the client to review participant communications as well to see if there's anything there that might be interpreted to promise a specific match formula.)

[This message has been edited by MWeddell (edited 04-28-99).]