Suspending 401k Match mid-year - the plan has a true up provision

Hello, my company has a non-safe harbor 401k plan. In the adoption agreement it is provided that the match formula is discretionary, but the limit(s) apply per Plan Year. The limits are not specified. But the company communicated verbally (only verbally) that it will match 50% on the first 6% of elective deferrals. The company  also always communicated that the match is discretionary and that it may stop it at any time. The company deposits matching contributions into participants' accounts quarterly. The company did so for the first 2 quarters of calendar year 2019. The company clearly communicated and announced that due to financial hardship the match will be temporarily suspended and that there will be no employer match for the 3rd and 4th quarters. 

Now it is the end of the Plan Year and time to calculate the true-up. If we take annual compensation and multiply by the match that was in Q1 and Q2, this would mean we still need to provide match for Q3 and Q4 even though we communicated that there will be no match in Q3 and Q4. 

What are our options other than paying the match for Q3 and Q4? Paying the match for Q3 and Q4  is absolutely NOT an option at this point. What is the best way to mitigate the risk? 

What would be the least riskiest way? 

(1) calculate salaries as  follows:

X = (2019 W-2 wages plus Elective Deferrals from only Q1 and Q2) / 2      (the plan indicates that Compensation is W-2 wages plus Elective Deferrals as to All Contribution Types  ;

   and then calculate true-up as follows:

(X * 6% ) /2

This option at least ensures that we are doing true up to people who changed the percentage of elections within Q1 and Q2

(2) Amend the Plan to remove the true-up election? Can we still do it? Is it not too late? How do we amend the adoption agreement? Can we still amend the plan retroactively so that there is no true-up and contribution since 1/1/2019 are done on a quarterly basis?

(3) Cut the match in half (50% on the first 3%) and calculate the true up on this new matching formula and the FULL W-2 salary plus Elective Deferrals from all 4 quarters

(4) Just accept the notion that there is no uniform formula, so no need to do any true-up, people received Employer Match based on non-uniform formulas. I understand the risk here is the ACP test as we have a couple of executives who maxed out in Q1 and Q2

I did not read your proposed solutions because I don't think this is that complicated:

• if the plan says that matches are calculated on a per payroll basis, then there is no such thing as a true up and nothing to do.
• if the plan says the match is calculated on an annual basis, then calculate an optional match that approximates what was actually deposited, and consider the prior deposits to be estimates.  In a perfect world, you will have some modest additional deposits to be made, "true-ups" if you will but not my preferred term in this scenario.  In an imperfect world you will have some people that left after one or two quarters and will have a much higher rate of match than you wanted...then you can either decide that everyone has to get that, or actually take some money out of those participant's accounts and reallocate it to others...not the prettiest thing in the world but ok - note that money cannot go back to the employer.

...and that's why we wouldn't generally have our clients make matching contributions as they go along.

Would really depend on plan documents, SPD, etc. Of course, you can have a payroll match with true-up at end, including discretionary true-up, which is what we normally recommend.

I would like to revive this thread.  We have client with a Fidelity prototype.  They have historically made a discretionary match on a payroll period basis (pay weekly) that they need to suspend the match for foreseeable future (likely remainder of calendar plan year).  They have elected to have the "Contribution Period" for determining matching contributions be the Plan Year so an annual true-up.  The other alternatives in the Fidelity AA are to have the Contribution Period be the payroll period, calendar month, plan year quarter, or an option that permits the employer to determine the Contribution Period at the time the discretionary match was determined.

There were a number of participants that received large bonuses in Q1 and have maxed out their 401(k) deferrals so some participants are already in need of a true-up.  Should the last Contribution Period option in the AA be selected so that the Contribution Period matches the period during which the employer was matching?  Is that possible now given the wording of the AA provision given that option envisions this customized Contribution Period being determined at the time the discretionary match is set.  (The employer has been making the same match for some number of years so not really clear when the discretionary match was set per se but there was no effort to try and specify a different Contribution Period in the past.)

I've also wondered if there is any way to read the plan to provide that the Contribution Period would automatically be limited to just that portion of the Contribution Period during which the employer is actually making a discretionary match but I don't see that.

Thank you.

40 minutes ago, 401 Chaos said:

I've also wondered if there is any way to read the plan to provide that the Contribution Period would automatically be limited to just that portion of the Contribution Period during which the employer is actually making a discretionary match but I don't see that.

no

I'd be hesitant to change at this point.  It might depend on whether the plan has last day language for the match (I would hope not if they are making contributions each pay period) and if not that argues for not being able to change.  More than argues - I think it clinches it.  Also such an amendment would have the distinct possibility of being discriminatory as you describe the circumstances.

Thanks, Bird.  No last day language. 

So, just to play that out, are you saying nothing (i.e., the discretionary match) can be changed or saying the true-up election cannot be changed?  And if the later, what would that mean?  In this case, it appears only HCEs would be getting trued-up based on ytd contributions. 

1 hour ago, 401 Chaos said:

So, just to play that out, are you saying nothing (i.e., the discretionary match) can be changed or saying the true-up election cannot be changed?  And if the later, what would that mean?  In this case, it appears only HCEs would be getting trued-up based on ytd contributions. 

Not knowing the ins and outs of the doc, it's hard to answer.  But I'm confused, if they got bonuses already were they not matched?  Or are you saying it's the other participants that need true-ups?  If the match is based on annual pay, and you've made matches for part of the year (let's call them estimated matches) then the trick would be to bring everyone up to the point of the highest rate of match, wouldn't it?  Which, as the year plays out, becomes a lower and lower percentage...unless someone quits or is let go, then you're screwed.  Which is why I'd not run a plan that way.

It might be a surprise but I don't deal with matching contributions that much; I think they s*ck for a lot of reasons.  I'd hope someone else could contribute here.

It sounds like the discontinued the match for 2019 in 2019 and the plan allows for that as it seems to be discretionary. But without reading the Plan Document I can't bee 100% sure.

It seems like the trouble starts when a plan document calls for match to be computed over the entire plan year but match is deposited and credited to participants' accounts before the plan year ended.  Try to avoid that situation.

I realize it's too late for 2020.