BRF - Match Formula

[Gilmore]

Here is a proposed match formula. Appreciate any thoughts on whether non-discrimination testing of the availability of each rate of match would be applicable.

The match rate would remain the same at 50%.

The cap on the match would increase with each year of service earned.

Less than 1 year of service, no match.

More than 1, less than 2, 50% match capped at 1% of compensation

More than 2, less than 3, 50% match capped at 2% of compensation

and so on up to 5 year and beyond, with the cap staying at 5% of compensation.

So the rate of match remains consistent. It seems to me that the increasing cap is more of an ACP issue.

Thanks.

[mphs77]

I had a client with a similar set up years ago. It worked for them as they passed ACP.

[Gilmore]

Thanks. So the benefits, rights, and features test for the availability of the match rate is not a concern because everyone gets the same rate of match?

[My 2 cents]

I don't work on defined contribution plans, but somehow, it does not look like a rights and features issue to me. If the matches pass testing, that should be good enough.

[Doghouse]

Everything I know says that it IS a benefits, rights and features issue. What has to be nondiscriminatory is the RATE of match, which is based on the 401(k) contributions that are eligible for matching contributions. The fact that the nominal rate is the same but with a different cap effectively results in a different rate.

[Tom Poje]

I'm willing to sit in the doghouse and say it is a BRF issue.

The ERISA Outline Book would also seem to agree. briefly, very briefly the following would seem relevant.

Not sure how you could say it doesn't fall into this scenario, just based on this.

see chapter 11 Part E3
3.b.Nonuniform matching formulas. The discriminatory rate of match issue can also arise when the matching contribution formula provides a rate of match that is not available on a uniform basis to the eligible employees.

3.b.2)Example - match based on years of service....

[Gilmore]

Hi Tom,

Thanks. I saw that example as well. But the example illustrates a formula in which the rate of match changes with increased service. I think the example used a 100% rate of match with 10 years of service, with a decreasing rate for fewer years of service, with a 10% rate for less than 3 years.

So even though that example illustrates a decreasing match rate, do you agree with Doghouse that, in the formula that I have laid out, each year of service would need to be tested even though the actual rate is the same, but the increased cap causes an increased amount of match.

Makes sense, it's just that Sal is usually so thorough and I don't see any mention of an increase in the cap only in any of his examples.

[Tom Poje]

I vote yes

while the example isn't the same, it is a situation of match based on years of service.

and you are providing a different match based on years of svc

[Gilmore]

Ok, thanks.