Plans Merged; Prior Plan Administered a Higher ER Match % than Plan Doc called for. Are corrective measures needed?

Hi all. I have a client who merged two 401(k) plans starting 1/1/22. Plan A (the surviving plan) provides for an ER match of 100% up to 5% of a participant's compensation. Prior to the merger, Plan B's plan document called for a discretionary matching contribution at the end of plan year. Turns out, for 2021, Plan B was administered using a 2% match every payroll. Of course, the Plan B's plan documents were not amended accordingly. Plan B participants were notified of the change in ER match (which was administered in a non-discriminatory fashion and was more generous than what the plan document provided for). Are corrective measures needed here?

Specifically, my questions are as follows: 1) Are we permitted to retroactively amend Plan B following completion of the merger (which was effective 1/1/22)? If so, do we have to resurrect Plan B to amend since it merged with Plan A effective 1/1/22? Or, can we simply amend surviving Plan A to reflect the fact that the prior Plan B was administered during 2021 using a 2% match? Is that even necessary, given the fact that participants received an increased benefit in a nondiscriminatory manner?

Any help is welcome. Thank you.

So for 2021 Plan B was doing 2% match per payroll but document says annual discretionary match? Sounds like you may have a possible true up contribution for B for 2021 where you'd deposit to the contribution to the surviving merged Plan A.

That is if you do need a true-up, treat it as a receivable as of 12/31/2021 that was transferred to Plan A on January 1/1/2022.

Thanks for the response, Lou. I agree a true up might be necessary, but wouldn't a retroactive amendment to Plan B that provides for the ER match of 2% be simpler, and less costly? Is this possible with a merged/termed plan? EPCRS provides: "Availability of correction for a terminated plan. Correction of Qualification Failures and § 403(b) Failures in a terminated plan may be made under VCP or Audit CAP, whether or not the plan trust or contract is still in existence"

How costly would it be to give 2% annual v 2% per payroll? Then you'd actually be following the terms of Plan B. You don't need to increase to the Plan A 5% for 2021, they were unrelated plans, right? As for retro active amendment if it is cutting anyone's benefit I'd think that would be something that you'd need IRS approval in VCP.

Another possible thought is that because the match was discretionary, the employer's announcement to the employees for 2021 did not constitute a plan amendment but a guarantee that the minimum discretionary match for 2021 would be equal to at least 2%. I agree that a true-up would be advisable for 2021 which could be made up to the due date of  the sponsor of Plan B's tax return. While it would be belt and suspenders to amend Plan B to provide for a minimum 2% match with discretion to make a higher percentage match, I do not think it is strictly necessary in this context. 

Think of this in this manner: what if the plans had not merged and B's sponsor did not do as well economically for 2022? B's sponsor could decide not to continue the 2% approach in 2022 and make a match (or not) at the end of 2022. Why tie the employer's hands if it is not strictly necessary?