Matching Forfeitures / Nobody Salary Defers

[BeanCounterBlues]

Facts:  Small 401k plan.  Assume that all employees voluntarily choose to not salary defer for 2018 so there are no contributions for 2018 ("no deferral" situation will not be persisting into the next year).  Former employee withdraws and forfeits unvested match during 2018.  Plan document states that unvested match forfeiture will be used to reduce the employer's matching contribution.    Plan document allocation formula for matching contributions is "either a percent of deferrals or a flat amount per participant to be allocated in a non discriminatory manner."   The provision does not state that the employee has to actually salary defer to receive a match (although I would assume that is implied?).  The match is discretionary, and optional per plan document provisions.

Question:  for 2018 can the employer declare a match in the amount of the forfeiture by way of board resolution, and then allocate it as flat amount per plan-eligible participant?  Something seems wrong w/ this, however, the client would rather dispose of the match forfeiture as a 2018 allocation to the employees than amend the document to allow the match forfeiture to be used to pay plan fees (a feasible option w/in the plan document).

*****

Appreciate any comments.......

[ERISAAPPLE]

Is any contribution mandatory, or are contributions discretionary? 

If mandatory, does the plan say who decides whether the "match" will be a percentage of deferrals or a flat amount?   

My guess is the contribution is discretionary and the employer gets to decide.  If the employer decides a percentage, then the contribution is a match, it appears, under both the Internal Revenue Code and under the plan. 

If the employer decides a flat amount, that is not a match under the Internal Revenue Code.  That is a profit sharing contribution (or company contribution or employer contribution, whatever you want to call it, but it is not a match under 401(m)).  

It looks like your question is a matter of plan interpretation.  The appropriate person with discretion (if any) may be able to interpret the plan to mean that the use of forfeitures to pay for a match includes using the forfeiture to fund a contribution that is a match under the plan, even if the contribution is not a match under the Internal Revenue Code.  

If the allocation is a per capita amount regardless of deferrals, it gets tested under the general 401(a)(4) rules, not under the ACP rules.

I recommend they get a better plan document that is drafted more clearly.  

 

[Bird]

Are you sure it has to be allocated for 2018?  Sometimes (often?) the doc will say it has to be allocated in the year of the forfeiture or the next year.  I'd try that first.  Otherwise, I'd try to use it on admin expenses.  Last choice would be to allocate it as a profit sharing contribution, assuming the plan allows match ff to be allocated to PS.  Which raises another caution flag - will this create nuisance accounts for participants who otherwise would not have an account?  If you wind up allocating $25 or whatever so someone who doesn't have an account, that is a waste.

[Bri]

Can an -11g amendment be used here?  Increases benefits....you could do it in a nondiscriminatory manner (only pick NHCEs who already have balances? is that a contingent benefit issue?)

spitballin' out loud to myself on a Friday afternoon.

[Luke Bailey]

Just put in the resolution that, "To the extent that the allocation provided for in this resolution might be contrary to any provision of the plan, the plan is hereby amended," and make sure that the person/body that adopts the resolution has authority to amend plan.

[ERISAAPPLE]

15 hours ago, Luke Bailey said:

Just put in the resolution that, "To the extent that the allocation provided for in this resolution might be contrary to any provision of the plan, the plan is hereby amended," and make sure that the person/body that adopts the resolution has authority to amend plan.

To Luke's point, and only if you really need an amendment, if the resolution is signed after the end of the plan year, that would be a late discretionary amendment.