Suspension of Employer Match

[Guest sjlbenefits]

I have a client with a non-Safe Harbor 401(k) plan. The plan is a prototype that includes the typical amendment language. The plan has a calendar year plan year and provides for a 2% nonelective employer contribution and a fixed employer matching contribution equal to 50% of the first 3% of elective deferrals with a last day of plan year employment requirement and a 1,000 HOS requirement (both of which are waived upon death, disability or retirement on or after 65). Due to the current economic conditions, the employer would like to cease both the nonelective employer contributions and the matching contributions for this entire plan year (including retroactive to January 1, 2009).

Can the employer suspend both the nonelective employer contribution and the matching contributions for this entire plan year because no one has yet attained both 1,000 HOS and employment on the last day of plan year? Or to eliminate any 411(d)(6) or other concerns, can the suspension be only prospective such that participants receive a match from January 1, 2009 through the date of the suspension using compensation through the date of the suspension? Based on previous threads, it appears that this may be possible because there is no allocation formula accrual here based on the fact that the end of the year has not been reached.

Has anyone amended a non-Safe Harbor plan midyear to eliminate the nonelective employer contribution and/or matching contribution in its entirety rather than from the date of the plan amendment?

Is anyone aware of any lawsuits by participants based upon contract law or reliance theories due to fixed formulas included in summary plan descriptions? I have not found any yet during my initial online research.

Thanks. I appreciate any help that any of you can provide.

[rcline46]

Because the contributions require EOY/1000 hrs, they can be removed for anyone who is not dead, disabled or retired.

If it is a profit sharing plan, why are the match and non-elective contributions fixed in the documents? They should be open for just these reasons.

[Guest sjlbenefits]

Thank you for your response, rcline46.

Just to reiterate, if the plan is amended in August 2009 to cease all matching and nonelective contributions, the plan would not need to provide any employer match or nonelective contribution for the plan year 2009 (calendar year) other than for those participants who die, retire or become disabled?

It just seems too good to be true.

Is a 30-day notice required or recommended similar to the Safe Harbor 30-day notice requirement? Otherwise, all that is necessary is a corporate resolution to amend the plan, a plan amendment and SMM?

Thanks.

[rcline46]

Yes, an amendment is all that is necessary to remove the contributions based on the information you provided. No active employee has yet reached the end of year, so they have not yet accrued a right to a contribution.

I would notify the participants of the change in match, but it is not required.

[Bird]

Just to reiterate, if the plan is amended in August 2009 to cease all matching and nonelective contributions, the plan would not need to provide any employer match or nonelective contribution for the plan year 2009 (calendar year) other than for those participants who die, retire or become disabled?

Right, and you would only need to provide those contributions to those who had already died, retired or become disabled before the amendment. No one accrues anything until the conditions to receive a contribution are satisfied.

Is a 30-day notice required or recommended similar to the Safe Harbor 30-day notice requirement? Otherwise, all that is necessary is a corporate resolution to amend the plan, a plan amendment and SMM?

No notice needed; the SMM should take care of it.