Removing True Up mid year from Safe Harbor Plan

Currently the plan makes all match contribution each payroll period. However the match is based on annual comp/deferrals -  aka a True Up.

The employer wants to change the match to a payroll  period only.  No true up.  Can this change be implemented mid year?

Thank you.

No. Benefits cannot be reduced; removing True-Up is a reduction in benefits. 

Yes and no.

Can you amend the plan to prospectively remove the true-up? Yes, even though it is a prospective reduction.

Can you keep the ADP safe harbor for the plan year if you make the amendment? No, because the employer did not keep the ADP SH promise it made for the current plan year.

An ADP SH matching contribution can be the subject of a midyear amendment to reduce (or eliminate) the ADP SH matching contribution if the requirements of 1.401(k)-3(e) and (g) are met, e.g., 30-day advance notice of the amendment, the amendment also reinstates the ADP test (on a current-year testing basis) for the entire plan year, the distribution of a 30-day advance notice of the revised supplemental notice to participants, etc. In other words, the plan cannot operationally "revert" back to ADP-tested status, it must affirm that the ADP test will be used for the plan year. Some plans have a built-in provision of this nature (stating that the ADP test applies for the entire plan year using current-year ADP testing whenever an amendment is adopted to reduce an ADP SH contribution), and for such a plan, the amendment would not need to say repeat all that again. But rather than look for that language, I think it best to simply include the language in the amendment anyway because there is no harm done if you are only repeating something already stated in the plan, and it makes it more obvious to all parties that ADP SH status is lost. If more pain is desired, read on.

To protect the plan from a likely violation of the anti-cutback rule, you would also need to protect the true-up feature for the portion of the plan year during which the plan year was used as the matching computation period. In other words, a true-up would be owed for the portion of the year starting on the first day of the PY as measured through the later of the effective date or the adoption date of the amendment to shorten the computation period. For that first portion of the PY, the rate of deferral would be the deferrals (taken into account by the formula) for the portion of the PY during which the "entire plan year" was the computation period, divided by the compensation (taken into account by the formula) for the portion of the PY that the "entire plan year" was the computation period. Only at that point can the match become determined using the payroll period computation period.This paragraph would also apply even if the fixed match formula was not an ADP SH match. But for the ADP SH plan, the effective date of the amendment changing the matching computation period to a shorter period must be at least 30 days into the future, so you must essentially add still another month to the portion of the PY during which the true-up calculation must be protected. I suspect that the employer will reconsider the risks and benefits associated with making such an amendment.

You should check your Plan document to see when the document holds the match is computed.  Is it per payroll period or annual or at the annual discretion of the administrator?  Just because the match is FUNDED concurrently does not mean that the computation is payroll period based.  Allocation and deposited are not the same thing.  In fact, they can be very different.