Discretionary Match After Plan Year End

My apologies if the answer is obvious and I'm just not seeing it.

The plan provides for a discretionary match which the plan sponsor may make after the plan year has ended (1000 hours and last day required).

The plan sponsor wants to wait until later in the year to decide whether or not to make the match, let's say after March 15th.  The plan fails the ADP test, and if match is allocated pro-rata over deferrals will most likely fail the ACP test as well.

If the match is discretionary, is it possible to allocate the match by reducing the match to the HCEs sufficient to avoid an ACP failure and possible excise tax?  I do not see anything in the document that indicates one way or the other.

Appreciate the assistance.

Maybe. I think the plan document would need language not just making "the" match discretionary, but permitting different matching formulas for different groups of employees, similar to the language most plans have for new comparability nonelective contributions. Even if the language is not very specific, it would need to be subject to that interpretation. If the plan document does not have such language generally, it may have flexible language for QMACs, at least.

The protected benefit rules apply to key employees and HCEs. Documents must be operated in accordance with their terms, including the matching allocation formula.  For any plan year, once participants have become entitled to a fixed contribution, or have become entitled to a portion of a discretionary contribution under the matching allocation formula, then that amount, or that portion, cannot be subsequently reduced (for that plan year).

The fact that the overall annual match is discretionary in amount (which means only that it is not fixed in amount) does not mean the allocation formula itself is discretionary any formula must be followed, e.g., pro-rata on deferrals). In contrast, the matching allocation formula is nearly always, by its terms, uniform as to all participants who have made deferrals (and if not uniform, the formula must state in what way it is not uniform).

The rules thus described are the same as those for profit sharing contributions, where you have a discretionary nonelective contribution (i.e., the amount of profit sharing contribution is discretionary, but not its allocation, meaning that you must follow the plan's nonelective contribution formula). While there is now such a thing as having a profit sharing allocation formula that states that "each participant is in their own allocation group," I have not seen or heard of any such provision for the matching component of the plan (and even if it were possible, the plan would need to so state prior to any participant becoming entitled to an allocation of the matching contribution for the plan year). The exclusive nondiscrimination testing method for matching contributions is the ACP test (there is no such thing as "the general test).  (An ACP safe harbor arrangement stated in the plan is an ACP test method.)  In addition, each unique rate of matching contributions must be nondiscriminatory under Regulation 1.401(a)(4)-4, which is why employers need to be careful when they do have a non-uniform allocation formula.

You are correct, I doubt that any document contains a provision allowing an employer to cut-back matching contributions for HCES in anticipation of a failed ACP test, and I doubt the IRS would knowingly approve such a provision in a preapproved (or any other) plan because it could potentially violate the anti-cutback rule. The fact that such language would not be discriminatory is irrelevant.

I believe there is another older thread on this forum reaching the same conclusion, possibly with a citation to authority.

i asked a similar question almost two years ago and this is the thread. The consensus was that it depended on the language in the Plan Document. 

Additionally, this is text from ASPPA's DC2 in chapter 3:

Operational Techniques to Facilitate Passing the ACP Test
Some plans authorize the employer to adjust the contribution rates of the HCEs prospectively during the year to prevent the plan from failing the ACP test. For example, if the plan permits after-tax  employee contributions, the employer might be authorized to reduce the HCEs’ rate of after-tax employee contributions prospectively (on a pro rata basis or through some other acceptable means authorized by the document), so that the projected ACP of the eligible HCEs is reduced for the plan year. This is different from the prohibited methods described above, because the plan is not failing
to allocate employer contributions due the HCEs nor are contributions already made being forfeited. Instead, the employer is reducing prospective after-tax contributions by the HCEs that would otherwise be included in the ACP test.
Similarly, some plans are designed with a discretionary matching contribution formula, under which the employer can declare a different rate of matching contribution for the HCEs. This lesser rate of discretionary matching contributions for the HCEs produces better ACP testing results. Again, the prohibited methods described above are not being employed with this technique. The employer is not disregarding the plan formula. Instead, the plan formula is designed so that the employer can tailor its rate of matching contribution to produce better testing results.
When the plan is using the prior year testing method, the ACP limit is known early in the plan year because it is based on data from the prior plan year to determine the ACP of the NHCE group. This makes it easier to use the techniques described above.

the FT William document has the following language under matching contributions

(i) Correction Methods. The Plan may, pursuant to applicable Treasury Regulations, do any of the following to avoid or correct excess contributions and/or excess aggregate contributions:

(1) provide for the use of any of the correction methods described herein;

(2) limit contributions in a manner designed to prevent excess contributions from being made; or

(3) use a combination of these methods.

I read (2)  to say I can limit the HCEs match

I assume in this day and age most documents have similar language, unless perhaps you have one of the asset houses that provides bungled services that do everything including the document, shoot, they probably include spinning your swivel chair if you wanted. they can do so much for 1/2 the cost or something like that.

If you wanted to get picky, (2) refers to excess contributions but not excess aggregate contributions. However I think it is reasonable based on the language in (i) to interpret it to mean that the term "excess contributions" in (2) is intended to include excess aggregate contributions. But it sure would have been nice of them to include that one extra word to avoid any confusion.

I guess my question would be what's the harm in failing the ACP? That money gets kicked out of the Plan and into the pockets of the HCEs so what are they worried about?

I will revise my earlier post to agree that if the plan document can be reasonably interpreted as not conferring a protected benefit on HCEs under a uniform allocation formula, as when there is something in the document (AA) at least suggesting that the amount of discretionary matching contribution to be contributed for one or more HCEs can be a separate discretionary amount than the discretionary amount to be allocated to NHCEs, then I acquiesce to that reasonable interpretation. My intention had been only to suggest that such liberty does not automatically flow solely from the presence of the word "discretionary" immediately prior to the word "matching," and that further inquiry is necessary to determine if that discretion extends to things like the allocation formula and the allocation conditions. If no discretion is to be found in those latter contexts, there exists the possibility that HCEs have a protected benefit. I have heard of employers taking liberties that contradict plan language on the theory that a "discretionary match" means I can do whatever I want because I am the boss and it says "discretionary match." Under that theory, I could even exclude NHCEs, perhaps just those that live in a certain zip code.

I speculate that the Ft. Wm. document excerpt that refers only to "excess contributions" in the second enumerated item might deliberately exclude any mention of "excess aggregate contributions." I would be reluctant to rely on that language in the context of ACP, but only because I'd rather be safe than sorry.  In contrast, I would be delighted if a preapproved AA were to have an option providing that HCEs were not required to receive any "discretionary match" (even when the NHCEs receive that match), but that the employer could nevertheless choose to make a separate discretionary match for any HCE in an amount that would not exceed any limit on that HCE imposed by any applicable nondiscrimination test.

I know that many plans have specific language saying that you can avoid a 415 failure by NOT contributing or allocating the full amount required by a contribution or allocation formula (but, if you do actually do allocate an excess annual addition, then you must correct via EPCRS). Some plans have interesting language with regard to ADP SH contributions for HCEs, i.e., HCEs are technically excluded from the arrangement, but the employer has the discretion to operationally add them back (not to exceed the amount that would be contributed if they were a NHCE). It appears to me that such language is structured so as to avoid any anti-cutback issue.

[I don't know why my font size changes midstream when I cut and paste from my clipboard (and please don't clutter this thread with a response on that issue).  I'll figure it out at another time.  I've been trying to  make all of this response have the same bigger font size as it appears in the first two paragraphs.]

I can't say as regards to FT William document.

for instance, elsewhere the document says

(b) Matching Contributions and Voluntary Contributions. In the event the nondiscrimination tests of Section 5.02(b) are not satisfied with respect to Matching Contributions and Voluntary Contributions for any Plan Year, excess Matching Contributions and Voluntary Contributions for the Plan Year determined as set forth in Paragraph (1) shall be corrected as set forth in Paragraph (2).

(1) Determination of Excess Contributions. The Matching Contributions and Voluntary Contributions of the Highly Compensated Employee with the highest Actual Contribution Ratio shall be reduced until the nondiscrimination tests imposed by Section 5.02(b) would be satisfied, or until the Actual Contribution Ratio of the Highly Compensated Employee would equal the Actual Contribution Ratio of the Highly Compensated Employee with the next highest Actual Contribution Ratio

(2) Correction of Excess Contributions. Excess Matching Contributions and Voluntary Contributions shall be allocated to the Highly Compensated Employees with the largest dollar amounts of contributions taken into account in calculating the Average Contribution Percentage test for the year in which the excess arose, beginning with the Highly Compensated Employee with the largest dollar amount of such contributions and continuing in descending order until all the excess contributions have been allocated.

...............................................

so clearly they are referring to excess 'aggregate' contributions in these descriptions

I am not familiar with that document, but now that you have provided additional context, I agree that an employer with such a document could rely on such a provision to avoid funding the match for HCEs.  (I also agree with dmwe that rather than engaging in analysis paralysis, just fund the contribution and make corrections!)

Is there not also an excise tax if corrected after March 15?

I confirmed with FT that their interpretation is the same as Tom's.  I should have checked there first before bothering you guys.

 I am curious though, for those who say just fund the match as is after March 15th and distribute the refunds, I don't see how the excise tax would not also apply?

Thank you for the responses.

Speaking for myself, I forgot to assume it was after March 15.

Gilmore -

of course it is possible now you have put a little big in FT William ear and they will modify the document language in the future to make it clearer.