Coverage / Qtrly Discretionary Match

[austin3515]

Question:  Plan has a quarterly matching contribution with a requirement that participants must be employed on the last day of the quarter to get the match for that quarter. Problem is they might match one or two quarters during the year.

Anyone have any suggestions for how to run coverage?  Can I treat anyone employed on 3/31/2016 as benefitting in the Plan, even if there was no match in that quarter?  What is someone terminated 4/15/2016, but there was no match until the 3rd quarter? Can I treat that employee as benefitting?

 

[RatherBeGolfing]

Good question :) I had do some extra reading for this one.  

It is not exactly on point, but it sounds like you should be able to treat the employee as benefiting with a 0% contribution rate for the ACP test...

2017 EOB (Ch 8, Part B, Item 4)

Quote

Suppose certain classifications of employees get a 0% match for a particular year? An issue arises with the proper treatment of a plan that provides for discretionary matching contributions that can differ for separate employment classifications covered by the plan, and the employer decides not to make a matching contribution for one of the employment classifications. Are these employees considered to be benefiting in a 0% match if they otherwise would have been eligible to receive a matching contribution if one had been made, or are these employees considered not to be benefiting for the plan year? The answer is simply not clear. If the plan takes the position that the employees are benefiting, then the coverage test is applied accordingly, but then when performing the ACP test (i.e., the nondiscrimination test applicable to the matching contributions) the plan will treat these employees as having a 0% contribution percentage for purposes of that test. If the plan takes the position that the employees are not benefiting, then their failure to benefit could affect the plan’s ability to pass coverage with respect to the 401(m) arrangement. But, if coverage is passed, then these non-benefiting employees would be excluded from the ACP test and their 0% contribution rates would not be taken into account to bring down the average of their group. On balance, we believe that the better answer is that they are benefiting, but they have a 0% contribution rate for the ACP test.

 

[austin3515]

Quote

On balance, we believe that the better answer is that they are benefiting, but they have a 0% contribution rate for the ACP test.

Yeah, I think that works!  Thanks RBG!

[RatherBeGolfing]

My pleasure

[Tom Poje]

I suppose most don't think about it, or have forgotten it, or don't even know it exists...

Why not use 1.410(b)-8(a)(3) Quarterly testing option?

since, for purposes of match that is what you have.

maybe that is a bother to test that often, but that plan design itself seems to make more sense and be more accurate of the situation.

[CuseFan]

if someone could get a match had they made a deferral they are considered benefiting, so your coverage is relatively easy because anyone who is employed on or after 3/31 would be counted as benefiting for the year even if terminated later and not eligible for a match in a later quarter. and if those not benefiting in Q1 because they terminated have less than 500 hours - probably most if not all - then they can be statutorily excluded. So coverage on the match should be a slam dunk, or at least a banked three pointer at the buzzer from 30 feet to beat Duke.

[CuseFan]

after reading your scenario more closely, i change my answer. to be benefiting, a participant must be eligible to get a match had they made a deferral. if there was no discretionary match declared for Q1-Q3, then no one would have received a match whether they deferred or not. now for Q4, they declare a match. those benefiting are employees who get or would have got a match had they deferred - so basically any terminations (except <500 hrs) would be non-excludable and not benefiting. 

[austin3515]

CuseFan, my coverage came out at 98.5% :)

I don't know if you read through RBG's excerpt from the EOB, but I have concluded that the scenario is close enough to use the same methodology.  Don't forget it's just a question of where they hurt me - ACP testing or coverage.  I'm including a lot of zeros in my ACP test based on this methodology/

Tom, its enough work to do one test a year, let alone 4!

[Tom Poje]

4 is less than ONE MILLION

still, if you are doing things quarterly, and there was enough change every quarter I could see an argument for quarterly testing

[RatherBeGolfing]

We used to do  a lot of quarterly testing plans 10 years ago.  I don't think we have a single one today.  I do see an argument for quarterly testing if you have coverage or ACP test issues.