In times of significant business disruption, plan sponsors may want to reevaluate their plan’s matching contribution. The information below answers frequently asked questions and provides other impacts to take into account before making a change.
Timeline and Requirements for Suspending Matching Contributions
- Plan sponsors can stop their discretionary matching contribution on a go-forward basis at any time, as these are not required contributions.
- In certain cases, an amendment to the plan document may be needed.
- Generally, participant communications are not required in cases where a plan amendment is not needed. However, it is always best practice to notify participants of a matching contribution suspension, as well as provide an opportunity for them to make changes to their current deferral elections (may require a plan amendment).
Frequently Asked Questions (FAQs)
- A plan sponsor can reduce either their matching percent or the amount of deferrals eligible to be matched, or both. For example, if an employer has a stated formula of a 50% match on deferrals up to the first 6% of compensation, they could reduce it to a 25% match on deferrals up to the first 3% of compensation, following a plan amendment.
- If a plan sponsor would like to temporarily suspend the match, the allocation formula should be amended to discretionary within the plan document, and any true up feature removed.
- If a plan sponsor would like to eliminate the matching contribution, the plan should be amended to either remove the match feature from the plan or to change the match allocation formula to discretionary within the plan document. Any true up feature should be removed.
- Generally, plans that do not calculate or deposit their matching contributions until year end often have allocation requirements to receive the match, such as working 1000 hours and/or a last day rule. In this case, the plan can still be amended to a discretionary match (adopted timely) and plan sponsors would have the option to not make the matching contribution at all for the 2020 plan year.
- If your plan document does not have any allocation requirements or par,ticipants have already met the allocation requirements to receive the match, the plan document can still be amended. However, the plan sponsor may still have to make the matching contribution on compensation earned from January 1 through the amendment effective date.
- Generally, in this case, there is no required amendment or participant communication, as a plan sponsors can stop their discretionary match at any time.
- It is best practice to sign a resolution which states the matching contribution is being suspended and notify participants of the suspension, as well as provide an opportunity for them to make changes to their current deferral elections (may require a plan amendment).
- You should check your plan document to make sure there is no true up provision. If a true up provision exists, the true up should be amended out of your plan document, and a Summary of Material Modification provided to participants.
- If you lay off 20% or more of your eligible plan participants during 2020, a partial plan termination may have occurred. When this happens, anybody laid off during 2020 will become 100% vested in all their money sources, including plan sponsor contributions that were not fully vested.
- There is no current IRS guidance that provides a relief for partial plan terminations and subsequent immediate vesting during 2020. It is more prudent for a plan sponsor to wait to use those forfeitures until later in the year, when further guidance may become available.