Suspending a 401(k) Match

[401kSteve]

Umbrella company has several adopting entities included under the same plan.  Not a MEP, just a controlled group of related LLCs that all participate in the plan.  One of the business units budget has been hit hard due to Coronavirus, while the others are still doing well.  Is it possible under these circumstances to suspend the match for 1 entity but not the others?

[MWeddell]

Yes.  Depends on the content of the plan document and/or any amendment that will be made to it.  There are coverage or BRF testing implications too.

[FORMER ESQ.]

401(k) Steve, there are several issues here. As MWeddell states, you will need to look at the terms of the plan document. In particular, does the plan document require a last day of plan year service requirement for receiving the match? 

In addition, as MWeddell points out, unless you can find a permissible disaggregation scenario (i.e., QSLOBs), the matching portion of all the plans in this controlled group will have to be aggregated for purposes of passing 410(b) coverage testing (with this LLC's participants showing as not benefiting), and for 401(a)(4) testing for contributions (in this case, the 401(m) test.)

MWeddell, question for you:  Is BRF testing really needed under these facts? In essence, the BRF test would go back to 410(b) ratio test for current availability of a BRF, and then a nebulas effective availability test, which seems to go back to some version of 410(b) testing. If you pass the 410(b) ratio test for coverage, you will likely pass the BRF testing under 401(a)(4).  

 

 

 

 

 

[MWeddell]

3 hours ago, FORMER ESQ. said:

MWeddell, question for you:  Is BRF testing really needed under these facts? In essence, the BRF test would go back to 410(b) ratio test for current availability of a BRF, and then a nebulas effective availability test, which seems to go back to some version of 410(b) testing. If you pass the 410(b) ratio test for coverage, you will likely pass the BRF testing under 401(a)(4). 

There may be a BRF issue.  It depends how the facts play out.  I can imagine a couple situations:

(1) Calendar plan year.  Uniform matching formula today.  Match for some, not all, employee suspended on 12/1 so some employees have a match available for 11 months and others have a match available for 12 months.  Snapshot date testing method is not used, perhaps because there are concerns that 12/31 might not be representative.  One has to perform a BRF test on the available match rate.

(2)  Plan also accepts traditional (non-Roth) employee after-tax contributions.  Match is suspended for some, not all, employees.  Now the eligible employees for the 401(m) portion of the plan include employees eligible to make after-tax contributions only and other employees eligible to make after-tax contributions and receive matching contributions.  One has to perform a BRF test on the available match rate.

[401kSteve]

Thank you both for the feedback.  There are no last-day or service requirements required for to receive the match, and the plan does not allow for non-Roth after-tax contributions.  This ins't a safe harbor plan, and the match is discretionary.  Ironically, this is an odd case where there are exactly zero highly compensated employees participating in the plan, so I'm not sure we could have a 401(b) failure.  The issue I think I'm likely to have is that though they are separate entities, they generally share the same management, so qualifying them each as a QSLOB wouldn't work.  Not sure if these facts would change your opinions, but I'm all ears!  Thanks!