How much notice must employees be given of 401(k) change?

[Guest Attyinaz]

We are in the process of amending our 401 (k) to make the employer match discretionary (from a dollar for dollar match up to 6%, matched bi-weekly), with an effective date of April 2, 2001. Is there a notice period with respect to when employees must be notified of the change? Our third party administrator has indicated that they would be more comfortable with a 15 day notice, which would delay our implementation as our Board is meeting March 23. The third party administrator is taking a conservative approach using defined benefit plan rules. We are under severe financial strain and need to implement right away. Do we need to give 15 days notice to employees?

[Alf]

Is it a safe harbor 401(k) plan? If not, there shouldn't be any notice requirement. Of course, the amendment cannot be made retroactively. If it is a 401(k) safe harbor, other rules probably apply to limit your ability to make the change with or without notice.

[QDROphile]

You can notify of an anticipated change before the amendment is adopted.

Consider that you may need to notify far enough in advance to allow participants a reasonable amount of time to change elections in light of the change in the match. They were promised a match if they elected to defer amounts. They may have a right to the match for amounts put in under the promise of a specified match.

You also need to consider how the match is designed. Different designs create different obligations to contribute.

[Guest Attyinaz]

Thank you all for the responses. No, it is not a safe harbor 401k and it is prospective. Our match was by biweekly pay periods.

[rcline46]

If the match was hardwired into the document, then you are required to give notice under 204h even thought in a profit sharing plan if you are reducing future accruals. If your document actually stated the match to be on a pay period basis it would not be different for the notice.

That said, I really doubt your document actually states the match will be DEPOSITED with each payroll! Therefore, you owe the match, but can deposit it later.

If I were an employee, and knew of the financial difficulties, I would be screaming for deposit of any match earned and not deposited, also watching deposits of my deferrals. Do not delay the deferrals. Dealing with the DOL for unauthorized use of employee or trust assets is very unpleasant.

[QDROphile]

Rcline 46, please explain why a change in contributions to a profit sharing plan is subject to ERISA section 401(h). 402(h) says that it applies only to a defined benefit plan or a plan subject to the funding requirements of ERISA section 302. Section 302 would cover a money purchase pension plan, but would not cover even a "hardwired" contribution to a profit sharing plan.

[rcline46]

Being conservative. If the match is hardwired, then it is accrued when deferrals are made unless match is eoy and or 1000 hour rule. Therefore because it is expected that as I defer in the future, I will receive a match. Removing the match reduces my future accruals. Reduction of future accruals triggers 204(h).

I don't think the question has been settled by the IRS if Top Heavy contributions or hard wired matches rise to level of 412 contributions (minimum funding) but failure to make them is a failure to follow the document.

[QDROphile]

You have made valid points about how to proceed with changes, but the reason is not 204(h). As you have indicated, the reasons are the need to follow plan document terms and the contractual obligation reflected in the document (if the employee defers, the company will match). Section 204(h) has strict formalities that do not need to be observed in order to cover the points you raise. In fact, trying to follow the 204(h) formalities could interfere with the most expeditious legitimate transition. For example, the original question was concerned in part with the timing of a Board of Directors meeting. Under section 204(h), a pre-meeting notice is ineffective. But under these circumstantces, the premium is on early notice, not the actual Board action. Artificially following 204(h) would hamper the best approach.