Matching formula based on Years of Service

[cpc0506]

Client wants to use the following formula for allocating the match to participants.

0-2 Years of Service - 0% match

3 or more Years of Service - 100% match up to 5% deferrals.

Eligibility conditions for match are 1 YOS (1000 hours) semi-annual entry dates.

I know that eligibility and allocation are not the same thing, but is this allocation formula an allowable one?  In essence they are keeping a participant out of the match for an additional 2  years.

[BG5150]

Can it pass BRF?

[mphs77]

If I remember correctly, as it is a Match, it only has to pass the ACP testing for it to be allowable.

I had a client many years ago (pre-2000) with such a matching formula, but with about 4 different groups whose match was depending on service

[cpc0506]

did they actually allocate 0% to some participants?

[Kevin C]

What is the vesting schedule for the match? I'm thinking of 410(a)(1)(B)(i).  

And, what are the allocation conditions for the match?

[Doghouse]

ACP is not the only test that matching contributions must pass in order to be nondiscriminatory. There is also the issue of effective availability, as BG5150 suggests.

[Tom Poje]

under the definition s (1.401(m)-5 eligible employee

(2) ...if an employee must perform additional service in order to ...receive an allocation of matching contributions for a plan year, the employee is not an eligible employee for the plan year

 

so I would read this as saying anyone who doesn't have 3 years of service is not an eligible employee for 401(m)!

now, while the max exclusion for deferrals is 1 year, you could, in effect have a 2 year wait for match, but then of course the match must be 100% vested as well.

so you fails the max service wait and probably fail vesting (though you didn't mention what the schedule was so that is unclear)