Cap on matching contribution

[Richard Anderson]

Can a cap be put on a matching formula, such as 50% of deferrals capped at 3% of compensation? There is no mention of a cap in the document. Following is the exact wording in the Volume Submitter document concerning the match formula:

"For each Plan Year, the Employer shall contribute to the Plan:

(a).........

(B) On behalf of each Participant who is eligible to share in matching contributions for the Plan Year, a discretionary matching contribution equal to a uniform percentage of each Participant's Deferred Compensation, the exact percentage, if any, to be determined each year by the Employer, which amount, if any, shall be deemed an Employer Non-Elective Contribution.

©.........

(d).........

(e).........

We are advising clients that they can put a cap on the match, based on a percentage of comp for each individual participant, as described above in the first paragraph. I don't think that the document language above allows that, because if a cap is used then the match is no longer a "uniform percentage of each such Participant's Deferred Compensation."

By the way, of course each year the cap we advise them to use may be a different % of comp, whatever puts the most match in the HCEs account.

Adding a cap to a matching formula or varying the cap percentage changes the dollar amount of the match and the allocation to the individual participants. I don't see how this can be definitely determinable. Any ideas about if this is OK.

[Guest]

you can probably do what you want as a board resolution...I think you have to do it prior to start of the year...almost like a SIMPLE where you tell people ahead of time what is going on. I'm not 100% sure on that, but the best I can suggest.

[Wessex]

I think Richard Anderson is right to be concerned; I don't think there is a definitely determinable allocation formula under the specified scenario.