Match Contribution True-Up for Active Employees Only

[buckaroo]

I have a client who has provided me with a document which states that match is made on a payroll-by-payroll basis for all eligible participants. It goes on to say that a matching "true-up" contribution will be made to participants who are actively employed on the last day of the year. The are claiming that they need coverage testing for the true-up match. (This is what was provided by their prior service provicer.) My opinion is that coverage is automatically satisfied as all eligible employees are eligible to participate in the plan and, if they make deferrals, then they will receive a match contribution. Therefore, the coverage ratio is 100% for the 401(m) portion of the plan.

I would take the postion that the issue is a BRF issue, but I am not 100% sure. My problem is that I am unsure how this should be tested. On the surface, I would think that there is a discrepency in the rate of match. However, if the plan sponsor matches accruately throughout the year, then, I would think that no testing is required as everyone was entitled to the same level of match. Do I simply say that there are two groups of people: the first consisting of those who are actively employed on the last day of the year and the second consisting of everyone else? Do I then calculate the nondiscriminatory availability? Or do I review and see of those not active on the last day, who received the correct matching contribution and include them in the first group as they received the "correct" matching contirbution? Or is there something else I should be doing?

As always, comments are greatly appreciated.

[Guest Sieve]

I agree that if all get (or are eligible for) a match, then that passes coverage. But, I think it's a clear BRF issue--effectively, different rates of match--so I'd test accordingly. Even if, as you suggest, there is accurate matching throughout the year, the true-up numbers may be very different from the payroll-period numbers for those who changed deferral percentages during the year (if the match has an upside %-of-comp limit).