Change Employer Matching Contribution

[Guest Sara H]

Am I correct in understanding that an employer can change the dollar amount that they match at any time if they have a "discretionary match"? More specifically, this employer's plan doc says that the employer will make a discretionary match not to exceed $520 per year (which equals $10.00 per week). They would like to increase it to $15.00 per week which would be $780 maximum for a full year. Can this be changed any time?

[Guest Dook]

A plan's matching contribution can be amended to increase the match at any time up to the filing deadline for their corporate taxes for the plan year ending within that corporate tax year.

The trick comes in the application of that increase. The increased match must be allocated to any participant who has accrued the benefit for any deferrals they made during the plan year. The match must also be applied in accordance with the plan document.

Example: If the match goes to anyone who deferred at any time during the year based on their annual deferrals and the formula is changed mid-year, you must go back and fund-up for all deferrals made by all participants earlier in the year. If the plan has specific matching periods (ie. monthly, per payroll, etc.) then you only need to fund the increased match prospectively from the effective date of the change.

It is best to spell out the application of the change in the Board Resolution authorizing the change.