Late year change in company match

[Guest wohtola]

A company announces change in match from 25% to 35% in November to increase participation effective at year end bonus. Those who maxed out during the year are not able to benefit by increased match. OK?????

[Kathy]

Maybe. Does the plan document provide for a discretionary match and is this being done by board resolution in accordance with the terms of the document or has there been an amendment to the plan? Does the plan document specify that the match be made on a "per pay period basis"? or does it actually talk about basisng the match on a plan year? If it bases the match on a plan year, you'll have to "true everyone up" at the end of the year.

ACP test will be interesting. My assumption is that the people who can afford to max out in the 401(k) salary deferral early in the year are probably at the HCE end of the scale so chances are it might not be discriminatory.

Question - do the two different match formulas have to be tested under 401(a)(4) and/or 410(B)?????

[Guest wohtola]

Thank you, Kathy! Now I have some good questions to ask. And no, some of us who are really interested in doing the right thing---saving for retirement, are not highly paid but have gotten themselves into a position to maximize contributions to retirement. And we are following the rule that says "Contribute over time to minimize the effects of market prices." We are amazed that the company would stiff those who have already contributed.

[Guest wohtola]

IMPORTANT TO CONSIDER IN THIS CIRCUMSTANCE IS THAT A 35% MATCH IS ONLY APPLIED TO THE BONUS (APPROX 35% OF YEARLY SALARY) NEXT WEEKS MATCH REVERTS BACK TO 25%. HUMAN RESOURCES SAYS THEY CAN DO IT. I'M NOT SO SURE. WHAT ARE THE RULES HERE?

[Guest]

does it pass the smell test?....

there may be a 414(s) issue here. you indicated that the 35% match only applied to the bonus. my only experience with 414(s) issues is based on ytd contributions, but I guess the same rules should apply on any contribution - maybe someone else could clarify or might know more. (if match is on per pay period basis then it makes a big difference if the HCEs are receiving a larger bonus in proportion to comp than everyone else)

for example, a plan could exclude bonuses from its definition of comp. but then you have to perform a comp test

comp used for allocation / total comp.

in this case it looks like you have

25% match on all comp

and an additional 10% on bonus only, or possibly a need to perform a comp test on

bonus / total comp.

any 414(s) gurus out there???