Permissable match allocation

[Guest Margaret25]

We are working on a takeover 401(k) plan that includes a match allocation based on years of service. Eligibility requirements for the match are 2 years of service/age 21. The client wishes to use the following formula for the upcoming year:

0% match for participants with 0-3 years of service

25% match for participants with 4-10 years of service

50% match for participants with more than 10 years of service

Assume that coverage and nondiscrimination testing will pass (no HCE’s). With a participant receiving a 0% match until attaining more than 3 years of service, does this impose an impermissible service requirement for receiving the match contribution?

[austin3515]

Sounds like a 3 year eligiblity to me, which would violate 410(a)...

Me thinks this is very very bad...

[Below Ground]

Me too.

[Guest Sieve]

I don't disagree with your answer, but let me pose this . . .

I presume you would have no problem with the match formula if it was tiered as follows: 10% for 3 y/s (really, it's 0% for 1-2 y/s, due to 2 y/s participation in OP), 25% for 4-10 y/s and 50% for more than 10 years of service (as long as it passes BRF testing). So, what is the minimum amount that would be acceptable for the first tier? 5%? 3% 1? (Isn't a 1/2% accrual sufficient for 401(a)(26) purposes?)