Non-uniform match

[401_noob]

Would it be permissible for a SH Basic Match Plan to allocate a discretionary match in a nonuniform manner where the owners get a lesser benefit than all the other participants? For example could the owners get a match equal to 40% of the 1st 100% where the other participants get a match equal to 70% of the 1st 100%?

I looked in the EOB and the EOB seems to suggest that it is possible, but it would be subject to BRF nondiscrimination testing. 

 

Thanks in advance!!

[ETA Consulting LLC]

Anytime an HCE receives less than NHCEs, then there couldn't possibly be a non-discrimination issue; because discrimination (itself) involves favoring HCEs at a rate disproportionately higher than NHCEs.

Your major issue would be allocating it pursuant to a definitely determinable formula.  Most plans are written to provide a consistent match formula where the only variation is who actually receives it.  But, if you have plan language that actually supports the different matching contributions you're trying to provide, then non-discrimination wouldn't be an issue.

Good Luck!

[401_noob]

So if the Plan's AA says that the additional match is discretionary would this kind of match be permitted?

[ETA Consulting LLC]

3 hours ago, 401_noob said:

So if the Plan's AA says that the additional match is discretionary would this kind of match be permitted?

No.  "Discretionary" is typically the formula that would apply to everyone eligible to receive the match.  It does not mean you may exercise discretion with respect to each participant.

Contrast this to the way the Employer Contribution (non-elective) formulas are written.  You'll see that you have the ability to define various groups; and have the discretion to allocate a different formula to each group.  Without this type of flexibility in the Match, your discretion would be limited to the formula itself while anyone who defers and is eligible for the match would receive it based on that formula.

Good Luck!

[BG5150]

3 minutes ago, ETA Consulting LLC said:

No.  "Discretionary" is typically the formula that would apply to everyone eligible to receive the match.  It does not mean you may exercise discretion with respect to each participant.

Good Luck!

My document provider disagrees.  They say a discretionary match is just that, discretionary as to formula, timing and who gets it.

[rcline46]

I would carefully read what the basic document says about the match, and various documents do describe 'discretionary' differently.

[BG5150]

Hre it is:

 

(B) Discretionary Matching Contribution. Discretionary Matching Contribution means a Matching Contribution which the Employer in its sole discretion elects to make to the Plan. The Employer retains discretion over the Discretionary Matching Contribution rate or amount, the limit(s) on Elective Deferrals or Employee Contributions subject to match, the per Participant match allocation limit(s), the Participants who will receive the allocation, and the time period applicable to any matching formula(s) (collectively, the "matching formula"), except as the Employer otherwise elects in its Adoption Agreement.

[401_noob]

it looks like my Plan Document has the same verbiage as BG5150's so could it be possible to allocate the nonuniform match?

[Belgarath]

Yup. BG, who is your document provider? That's a nice feature - ours doesn't have this flexibility, although even if we had it, we'd probably use it about as often as something productive coming from Congress.

[BG5150]

I think its Relius.

[401_noob]

Awesome, thanks for your input everyone!!

[Belgarath]

BG - if Relius, which document (IDP, whatever)?  The basic prototype/VS doesn't have this language.

[Tom Poje]

the only note I see in FT William is

NOTE: The discretionary formula in D.6a must meet the nondiscrimination requirements regarding benefits, right or features

described in Treas. Reg. section 1.401(a)(4)-4.

 

so I guess if you aren't favoring HCES you are ok.(?) In addition there is language that says the discretionary is in addition to safe harbor then the discretionary will meet those rules as well.

 

[BG5150]

I think it's a VS in adoption agreement format.  So it has a BPD and an AA

[Belgarath]

BG - at your leisure (as TPA's, we all have lots of that) could you confirm document provider, and if Relius (now FIS) can you confirm which document? We mostly use their PPA 401(k) VS with Adoption Agreement, and I can't find anything like the language you posted. I can see that it would be very handy in certain rare situations. Thanks!

[BG5150]

This is what it says on the BPD headers:  Defined Contribution Volume Submitter Plan

My quote is in the definitions section, # 1.35, Matching Contribution.  © 2014

[Belgarath]

Thank you! Yours must be the IDP formatted. Ours is the Defined Contribution Prototype/Volume Submitter Plan (and uses an Adoption Agreement) and it has nothing like that. I'll have to look into the IDP on a pay-per-plan basis if such a situation ever comes up!

[ETA Consulting LLC]

On 3/1/2017 at 11:17 AM, BG5150 said:

My document provider disagrees.  They say a discretionary match is just that, discretionary as to formula, timing and who gets it.

Typically is a key word; which leaves the option open for a document provider to write something different.  At any rate [no pun intended :-)] the language may seem to suggest that there is only a single formula (which is discretionary) that is given to a group of employees (who may be discretionary).  I do see a how this can be interpreted to mean a discretionary formula applied to each individual employee, but that would appear to be an interpretation issue. 

Some document providers write their plans to be intentionally vague while others write theirs to be a flexible as possible without ambiguity.  Without reading the actual document, I'll caveat my response.

I do appreciate this insight and your background.  This is a new one to me and I am happy that I now know that this issue is, again, a point of contention.  The IRS has evolved over time with respect to what constitutes a definitely determinable formula and they will likely continue to do so in the future.  So, it helps you keep up; and I thank you for keeping me up to speed on this :-)

Good Luck!

[Kevin C]

My perspective on this is influenced by regulation changes early in my career that significantly restricted an Employer's ability to use discretion to affect what participants receive.  See 1.411(d)-4, Q&A 4.  Personally, I would not be comfortable using vague plan language to justify using employer discretion in determining who gets what level of match or who gets a match.  I would prefer to take a different route and amend the plan to provide for a separate limit on the match that only applies to HCEs. Our VS document AA  match section has a place for special limits on matching contributions that can be used to provide for the lower limit on HCE match like the one asked about in the OP.