Discretionary Match

[52626]

Plan provides for a discretionary match ( no safe harbor). Match funded payroll basis but is based on year end - so a true up may be required

April 1, 2025 employer stopped the match - participants were notified the match would cease as of 4/1/2025.

1. TPA never amended the document to remove the plan year calculation so....

(i) the match for Jan 1 to March 31st would need to be calculated based on annual compensation - correct?

(ii)  Auditors doing the 5500 audit and stated the participants who entered after 4/1 need to get the match. According to them this is a discrimination issue - Here is where I am looking for some assistance.

Discretionary means it can stop/change at any time.  

 Participants who entered after 4/1 do not get a match - this would not be a benefits rights and feature issue - do you agree.

ACP Testing would be for the full year, but those that entered after 4/1 are not included in the ACP Test - do you agree

Thoughts

 

[justanotheradmin]

I think the auditors are probably right. 
you need to look at the formula of the match - if it is on an annual basis - and everyone is to receive a uniform percentage of pay based on deferrals - which is typical - why would someone who enters 4/1 or later be excluded? 

discretionary does not mean it can start stop any time - it usually means they can choose to give it one year or not. If they give it for that plan year, it needs to follow the formula in the document. Which sounds like is based on annual compensation and annual deferrals. 

If you let us know specifically what the document says for the annual based match formula maybe people can give more insight. 

If the sponsor wanted the ability to contribute match for some paydates and not others, the formula for the match needed to specify a payroll period or paydate basis. Not Annual. 

 

[Paul I]

I agree with @justanotheradmin and also note that it is the Plan Sponsor's obligation to make sure that the plan amendment to the plan document was properly worded and fully executed, including doing so in a timely manner relative to the effective date of the change.