Discretionary tiered match and benefits rights and features testing.

[KJohnson]

For a discretionary match, if the employer wants a "tiered match" such as 100% for the first 3% deferred and 50% for the next 2% deferred, do you have to perform a benefits rights and features test for each level of match, or does the fact that all ellgible participants could have deferred 5% satisfy this test. If you are making the match after the end of the year, do you really have an "effective availability" problem?

As a follow up, how "loose" do you think you can be in the plan document regarding a discretionary match and still have a "definite predetermined formula"? If you are going to use a tiered match do you think that needs to be stated in the document?

[Guest mo again]

The fact that all eligible participants could have deferred 5% solves the current availability question, but not the effective availability question. If I understand the testing correctly, a tiered match which decreases with increasing deferrals does not suggest an effective availability problem as a practical matter. An increasing tiered match will require BRF testing.

Concerning plan language, I have seen some that is pretty loose, with the word "discretionary" used heavily (discretionary percentage of deferrals up to a discretionary percentage of pay, etc.). I haven't submitted one for a determination letter recently, perhaps someone else has.

[KJohnson]

Thanks,

So (assuming you pass ACP) the fact that no NHCE's received the 50% match because they did not defer over 3% is irrelevant, because the level of match on their deferrals was 100%. In other words, you don't look at what was the effective availability of the 50% match for deferrals over 3%. Rather, you look to whether NHCE's received a 50% match or better on the deferrals that they did make. That makes sense to me--thanks.

[Guest mo again]

Yes, another way to look at it is that everyone effectively received a first tier match of 50 cents on the first 5%. A second tier was an additional 50% on the first 3%. That would not favor HCE's. If your HCE's were deferring more than the NHCE's, they are getting a lesser rate of match, and if they are deferring less than the NHCE's, they are getting the same rate of match.