Discretionary last day rule

[movedon]

This is a good one. ERISA plan. Client wants a discretionary last day rule for matching contributions - something like, "Employer reserves the right to make a matching contribution only for folks employed on the last day of the year."

1. I say no way, either it's impermissable discretion under 1.411(d)(4) or not a definite allocation formula, probably both.

2. Furthermore, even if such a provision was permitted, when would the decision about whether or not to impose the last day rule have to be made? Before the plan year starts, I would think, since there's no hardwired hours requirement or last day rule. I guess you could make an argument that the discretionary last day rule is a last day rule for purposes of timing the decision, but that's pretty circular.

Anyway, I'm good with "no," but I'm not really finding clear guidance on this, and I'm hedging just a smidge. Anyone got any thoughts on it? Thanks.

[austin3515]

It seems to me that you have all the authority you need, as outlined in bullet point 1. It's definitely out.

[movedon]

Thanks, Austin. I'm looking for angles to consider how it is that one of the big actuarial/consulting firms is (according to the client, anyway) telling them that this would be OK to do. I just don't see it.

[austin3515]

I would be curious to know what their support of this is. They must have done some research. If you ever get it, please post it! ?Maybe they've gotten determination letters from the IRS?

[movedon]

Will do. I do intend to talk to them (lawyer and consultant from big firm) about it and find out why they think this is OK - assuming the client is willing to pay the three of us to have the conversation! Thanks, again.