Changing discretionary per-payroll match mid-year

[AlbanyConsultant]

I've got a plan with a non-safe harbor discretionary match that is calculated per payroll with no true-up.  Halfway through the year, the plan sponsor now wants to cut the rate of the match in half.  Is there anything that would prevent this?  I don't see anything in the plan document that discussed this specifically.

 

I know they'd still have to pass the ACP test, so if this is a ploy to lower the match after the HCEs have maxed their deferrals, they'll just fail that anyway.  Is there anything else that could come into play?  Thanks.

[ETA Consulting LLC]

You won't see possibilities of a prospective amendment in the plan document.  When making a determination, you would typically consider two things: 1) Is there a prohibited cutback (which it's clearly not); and 2) Is the amendment discriminatory in nature with respect to current and effective availability of benefits, rights, & features.

With respect to BRF, (like you said), even if the HCEs have already maximized their deferrals and received all the match they're going to receive; such an amendment would only only fail the ACP test (and perhaps lead to a discriminatory rate of match).  Obviously, in ACP testing failures, those excesses may be refunded to the HCE and must be forfeited when testing for discriminatory rate of match.

With these two things; I cannot foresee an issue with the amendment timing for this type of amendment.  Even if only HCEs deferred during the first part (even though NHCEs had every right to do so), I don't think the amendment would fail to meet these two standards.  Others may have a different view.

Good Luck!

[RatherBeGolfing]

I agree with ETAs analysis above.

[Tom Poje]

I wonder.

lets say the formula 50% of deferral and that was changed to 25%.

and the HCEs deferred the max, so are finished.

a side effect, for all practical purposes, is the formula over the whole year, because of the way things worked out, the HCEs received a 50% match and the NHCEs, averaging things out will receive 33%. If that had been my formula for the whole year it would fail BRF, because no NHCE were in the 50% group. I don't think the fact changing the formula itself is a problem, but the added fact the HCEs maxed out might add a wrinkle. or worded another way, we changed the formula, reduced it and the only people it effects are NHCEs.

lets say they follow the same pattern year after year, that begins to smell bad.