Matches

[coleboy]

Client has a plan with age 21 and 6 months of continuous service. They have a discretionary match which has been typically $2,000 per participant.

They will be hiring some employees on a part-time basis( 24 hours a week) and want to know if they can "pro-rate'' that $2,000 match for these part-time employees. That is, they feel someone who only works 24 hours a week should not receive the same match as those who work 40 hours a week.

I'm thinking that maybe they should just go to a certain percentage of pay instead. Any other suggestions?

 

 

[Mr Bagwell]

Coleboy,

If someone defers at all, they get 2,000?  Or they cap the match at 2,000 if employee defers 2,000?  There is usually another condition attached to the match calculation.  Like, maybe, 100% match, but cap of 2,000.

I wouldn't get into the "service" match arena.  You would then have to BRF if there are HCEs getting match.  Yuck.

If a part timer wanted to defer, which helps the tests, I wouldn't discourage it.

While I understand the employer's position, I would keep it simple.

[Tom Poje]

while I've never seen it done, as long as the document allows it you could conceivably do that.

I guess something like

100% match for those employees with hours < 1250 , capped at $1000 match

100% match for those employees with hours >= 1250, capped at $2000 match

as pointed out, you would have to test BRF

so

if you had 4 NHCE < 1000, and 6 NHCE >1000 when testing how many eligible NHCE receive 2000 you would be at 60% which fails ratio % so further testing needed.

you didn't indicate if these 24/hr a week people would have 1000 hours in the year. if they never would, then they could be treated as otherwise excludable and testing wouldn't be a problem

[coleboy]

The match is capped at $2,000. Sorry I wasn't clear about that. The part-time employees would end up working 1000 hours during the year.

Thank you!

[Mr Bagwell]

Coleboy,

With a 2,000 cap, I would recommend to the client to not worry about the match for part timers.

Chances are the match is on a vesting schedule?  What's the likely hood the part timers are going to be around long enough to be fully vested?  I hate to think that the employer would try to stifle the employees from deferring.  Plus, I rarely see part timers loading the wagons for 401k.

I wouldn't change anything too dramatic for this.

[MWeddell]

If the BRF test is performed based on available match as a percentage of plan compensation, then it probably passes more readily than in Tom Poje's example.  It still seems like a lot of hassle unless the size of the employer and the number of anticipated part-time employees are both sizable.