Supplemental Employer Profit-Sharing Contribution for Employees Having

[Guest Cal]

Does a 401(k) plan which provides employer matching contributions and otherwise meets the requirements of 410(a) and 410(B) fail to satisfy the requirements of 410(a) -- relating to the maximum one year service for participation rule -- if it provides a supplemental discretionary service-weighted employer contribution payable to employees who have completed 5 years of service?

Does it make a difference if the plan has obtained a Determination Letter?

[MR]

This sounds like a plan that would need to be tested on a cross-tested basis, like any plan that divides the employees into different groups for allocation purposes.

[rcline46]

Legally not a problem, not even a BRF problem because years of service can be ignored under BRF. Only problem then is passing the ACP test. IMHO.

[MWeddell]

To answer your question, I don't believe the 5 years of service requirement for the additional contribution violates Code Section 410(a). One looks at the plan as a whole, not the more specialized definition of "plan" in Treas. Reg. 1.410(B)-7 and -9. Because employees are covered under part of the plan after 1 year of service, it looks fine. However, I'd suggest you research the issue more carefully than I just did.

Let's assume that the extra contribution is a nonmatching contribution. In that case you need to meet 410(B) and 401(a)(4), excluding only employees < age 21 and < 1 year of service. Cross-testing, a.k.a. testing on a benefits basis, is allowed.

If the extra contribution is in the form of a matching contribution, then not only do you include it in ACP testing, but also must perform benefits, rights, and features testing. See Treas. Reg. 1.401(a)(4)-4(e)(3)(iii)(G). Cross-testing doesn't seem to be allowed because the rules in Treas. Reg. 1.401(a)(4)-8 don't apply to -4 of the regulations. One cannot ignore the service condition because 1.401(a)(4)-4(B)(2)(ii) does not apply to an "other right or feature."

The determination letter will help if the problem is a matter of not following the plan document. If the problem is that you need to perform a discrimination test and it fails, the letter doesn't help at out.

Good luck.

[Guest Cal]

Thanks for the help!

[Guest Cal]

What is a BRF?

[david rigby]

"benefit, right, and feature"

Defined in Reg. 1.401(a)(4)-12.

Reg. 1.401(a)(4)-4 is Nondiscriminatory availability of benefits, rights, and features.