Reverse Match

[Guest Thornton]

I have a client who wants to match 100% of salary deferrals from 6% to 8% and nothing from 1% to 6%. This is a highly paid, professional employee group, so ACP might be ok. However, I doubt it will pass IRS muster. Any thoughts?

[Ervin Barham]

I don't have a cite, but you would have to pass the non-discrimination tests under 401(a)(4) as a benefit right or feature. I'm too brain dead to quote why, but I know prototypes cannot have the feature you are describing.

[MWeddell]

There's nothing wrong legally with the match at all. It's available to all participants, so benefit, rights, and features testing won't be a problem.

One practical problem is note how little match will be given to those earning $160,000 and contributing $10,000, only 0.25% of pay compared to 2% for most employees. The client should clearly understand that employees earning $125,000+ can't put in a full 8% and won't get the full match. On the other hand, this effect may offset what initially appears to be a matching formula that would lead to ACP test difficulties.

[This message has been edited by MWeddell (edited 05-07-99).]