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IRS Adds New Requirements for Retirement Plan Discretionary Matches

October 6, 2021

Courtesy of Kushner & Company

One of the requirements for those such as Kushner & Company who sponsor IRS pre-approved retirement plan documents for their clients is that every six years those documents must be updated and filed with the IRS for re-approval. Then, employers using these pre-approved plan documents must adopt their provisions utilizing the re-approved plan. That’s why plan sponsors across the country are amending and restating their plan documents now.

In this cycle, the IRS has new requirements for employers that utilize a fully discretionary matching contribution formula in their pre-approved plans. Note: this does not apply if the employer’s plan uses a safe harbor match and excludes discretionary matches in their plan document. In order to comply with the “definitely determinable benefits” requirement in which a plan is required to provide a definite predetermined formula for allocating plan contributions, employers must satisfy two requirements when approving a discretionary match:

  1. Provide the plan administrator or trustee with written instructions describing:
  • How the discretionary match formula will be allocated to participants (e.g., a set dollar amount or a uniform percentage of employee contributions);
  • The computation period(s) to which the discretionary matching contribution formula applies (e.g., each pay period, each calendar month, quarterly, semi-annually, or end of plan year); and
  • If applicable, a description of each business location or business classification subject to separate discretionary match formulas.
  1. Provide plan participants who receive a discretionary match allocation with a summary of the written instructions no later than 60 days following the date on which the last discretionary match is made to the plan for the plan year.

Just one more notice requirement for qualified retirement plans with discretionary matches.

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