Discretionary Match Notice Requirement

I saw a communication from a record keeper which provided a discretionary match participant notice template.  It seems to imply that a notice is required when any discretionary match has been funded. 

My understanding has been that this notice, due 60 days following the final funding of the match for a plan year, is only needed if the match was a "flexible" discretionary match and that this notice is not needed for a "rigid" discretionary match.

Did I miss a change in the notification requirement?

Thank you,

Tom

I just responded to another message on the board for something similar. I may be wrong here but my recollection is that in 2020 (or so, Cycle 3) the IRS began requiring pre-approved plans that have certain discretionary formulas to include annual notices with required information triggered to the funding date (not certain).   I do not work with pre-approved plans and am not aware of this being expanded to individually designed plans.  I also do not know if this is still the rule.  If still in place not sure why it would not have been expanded to individually designed plans (other than perhaps the change in the determination letter process for individually designed plans) but if it was, please put the authority in a response!

Out of curiosity I ran a quick search and found the following on the IRS website, which implies the IRS no longer considers the notice requirement as adequate in addressing the definitely determinable issue.

  I also found this dealing with 403(b) standardized plan restatements:

Q11: Are you taking the same positions relating to discretionary matching contributions and definitely determinable benefits as you took with the Cycle 3 DC plans?

A11: The basis for our position on discretionary matching contributions contained in a Cycle 3 Section 401(a) defined contribution plan can be found in Treasury Regulation 1.401-1(b)(1)(ii). This regulation states that a 401(a) profit-sharing plan must provide a definite predetermined formula for allocating contributions made to the plan.

Our application of the written defined contribution plan requirement (Treas. Reg. 1.403(b)-3(b)(3)) to the 403(b) Pre-approved Plans Program for Cycle 2 expects any allocation formula for an employer matching contribution to satisfy the concept of a definite predetermined formula. We will not permit the plan language for a discretionary matching contribution formula which represented a compromise on this issue in June of 2020 between the IRS and the practitioner community for the Cycle 3 401(a) defined contribution plans program.

We will no longer accept the following compromise language: If a discretionary Matching Contribution formula applies (i.e., a formula that provides an Employer with discretion regarding how to allocate a Matching Contribution to Participants) and the Employer makes a discretionary Matching Contribution to the Plan, the Employer must provide the Plan Administrator (or Trustee, if applicable), written instructions describing (1) how the discretionary Matching Contribution formula will be allocated to Participants (e.g., a uniform percentage of Elective Deferrals or a flat dollar amount), (2) the computation period(s) to which the discretionary Matching Contribution formula applies, and (3) if applicable, a description of each business location or business classification subject to separate discretionary Matching Contribution allocation formulas. Such instructions must be provided no later than the date on which the discretionary Matching Contribution is made to the Plan. A summary of these instructions must be communicated to Participants who receive discretionary Matching Contributions. The summary must be communicated to Participants no later than 60 days following the date on which the last discretionary Matching Contribution is made to the Plan.

For a discretionary matching contribution formula to satisfy the definite predetermined requirement, the following aspects must be addressed in the plan document:

• The matching computation period, such as payroll period or plan year, must be identified; this will eliminate ambiguity over the need for a true-up.
• There must be a note regarding the possible need for a true-up at year end where the employer contributes more often than the computation period
• There must be a definite allocation formula for the discretionary match, such as “a discretionary match shall be allocated to each participant as a uniform rate, for example 100%, of deferrals up to a uniform deferral percentage

The employer can have discretion over the matching contribution amount, the rate at which deferrals are matched, and any limit on the deferrals that are matched. The rate and limit are both factors in the determination of the amount of the contribution. The above sample discretionary matching contribution allocation formula retains this discretion but allows someone to know how it will be allocated.

Regretfully, I did not find any IRS guidance on the original notice requirements though there I did see some commentary discussing it.   See examples.

New IRS Requirements for 401(k) Plan Discretionary Matching Contributions – Sequoia.

Annual Notice of Discretionary Match in ‘Pre-Approved’ 401(k) Plans May Be Required Soon! - Ogletree

New Requirements for Discretionary 401(k) Plan Matching Contributions | Foley & Lardner LLP