Discretionary Match

[justatester]

OK...Here is the situation. I have a plan that has 3 divisions. The Match is discretionary. Div 1 match is 50% up to 6, Div 2 match is 100% up to 4%, and Div 3 has no match for this year.

For the purposes of coverage and ACP testing, would I count Div 3 participants as benefiting or not? My thought is since the match is discretionary, they are benefiting at a 0% rate for this year. I understand I will need BRF testing since the match is different by division.

Any thoughts/comments.

Thank You!

[austin3515]

OK...Here is the situation

"My parents went away on a weeks vacation, and, they left the keys to the brand new porsche..."

OK, now for something relevant...

From 1.410(b)-3

Similarly, an employee is treated as benefiting under a section 401(m) plan for a plan year if and only if the employee is an eligible employee as defined in §1.401(m)–5 under the plan for the plan year.

From §1.401(m)–5

Eligible employee —(1) General rule. Eligible employee means an employee who is directly or indirectly eligible to make an employee contribution or to receive an allocation of matching contributions (including matching contributions derived from forfeitures) under the plan for all or a portion of the plan year. For example, if an employee must perform purely ministerial or mechanical acts ( e.g. , formal application for participation or consent to payroll withholding) in order to be eligible to make an employee contribution for a plan year, the employee is an eligible employee for the plan year without regard to whether the employee performs these acts.

1) Is Division 3 benefiting?

Since there is no money to allocate, no one is eligible for an allocation of matching contributions. If your interpretation suggests otherwise, note the following: NO ONE RECEIVED ANY MONEY. Based on this basic issue (emphasis added), I have a hard time concluding that anyone is benefitting in Division 3.

2) You;re correct that BRF testing is required for Divisions 1 and 2. Since there is no form,ula for Division 3 it would not be subject to BRF testing. It would however, affect the regular coverage test.

3) You didn't mention an ACP test. Of course, if you go against my sound advice and treat Division 3 as benefitting, you of course have a LOT of zeroes in your ACP test...

[justatester]

Here is the language from the document:

Section 4.03: Employer Matching Contribution. The governing body of XXX may elect to contribute a matching contribution for its Participants who are employed on the last day of th Plan Year in such amounts or amounts as it may, in its sole discretion, determine proper.

Each participating employer/division has its own language. I guess my thinking was they determined the benefit of "zero".

So, if we treat Division 3 as non benefiting, the plan fails coverage. If we also remove them from the ACP Test, the ACP test fails. Let's say we do that, for BRF, should Div 3 employees be counted in the denominator of the test?

Additional thoughts?

[austin3515]

Section 4.03: Employer Matching Contribution. The governing body of XXX may elect to contribute a matching contribution for its Participants who are employed on the last day of th Plan Year in such amounts or amounts as it may, in its sole discretion, determine proper.

I'm guessing this is the contribution section of the document. It refers to "amounts." IT doesn't refer to how those amounts will be allocated. I would be shocked to learn of a plan with a determination letter that says pretty much the employer can allocate however they want... That being said, I think even if that was all the language there was in the document, that still isn't enough leeway to declare differnt match rates for different groups of people. You did say each division has different language, and I'm not sure what you mean by that, so perhaps you are covered in this regard.

Failing coverage for a match means you have to fix the failure, and unfortunately, the only correction there is to make a QNEC to enough people to bring the ratio percentage to 70% (or perhaps your Average Benefits test will work better). The people you bring in get the ACP for the NHCE's who are eligible for the Plan.

You might be better off declaring a nominal match (don't be obnoxious about it) to get them benefitting for coverage. But you'd have to run the numbers to see what works better...