401 (k) Match Based on...

Alex2003

Can anybody provide me with a reference to the IRS publication that explains what the match needs to be based on? I have found out that some of our union contracts refer to matching the BASE pay rather than EARNINGS (which seems to be more correct). Thanks.


Alex

Don D

It's my understanding that the employer can peg the match at whatever it decides it will be, as long as it is between zero and the maximum allowed by law. I've seen the match at zero and I've seen it at base pay and various percentages.

Alex2003

Thanks, Don. I agree with you that it is up to the employer what kind of a match to have (without going over the limits set by IRS). I just wanted to find the exact language in regard to what the match needs to be based on. From what I have found, the usual reference is to "compensation", which to me includes other payments than just the base pay. Thanks again.

Don D

The last plan I was in excluded all forms of compensation other than base pay for salaried plan. For the hourly plan, a separate document entirely, overtime was excluded. Neither plan included bonuses or gifts in the match calculations. The plan can be written to either exclude or include whichever of these the plan administrator or trustee wishes as long as maximums are observed and the appropriate tests by the auditor can pass muster. The more of these things you allow to exist in your contribution formula, the more complex the audit and proof tasks are going to be at plan year end. Your independent auditor (who should be a CPA) can furnish you with pamphlets or IRS code sections which outline this.