The Cycle 3 restatement process that ended July 31, 2022 ushered in a new participant notice requirement for plans that provide for a discretionary match contribution. The new plan documents include: 1) a condition requiring the Plan Sponsor to communicate the match in writing to the Plan Administrator/Trustee, and 2) that the Plan Sponsor/Plan Administrator communicate the matching contribution to the participants who are eligible to receive the match.

The first plan year the new requirement impacts your plan depends on the date the Cycle 3 restatement was adopted. If the document was executed in 2021, the notice requirement will be effective for the first plan year beginning in 2022. If the document was executed in 2022, the notice requirement will be effective for the first plan year beginning in 2023.For example, as plan asset size increases the fees paid to the recordkeeper through revenue sharing also increase and may at some point exceed the value of the services provided. Plan participants also do not have a simple and reliable way to determine the amount paid in fees to the recordkeeper.

What you should know

  • Prior to this change an employer matching contribution that was discretionary did not have to be stated in the plan document.
  • Employers must now follow a three-step process to meet the new IRS requirements.
  1. Specify the amount and the allocation method for any matching contribution in a resolution of its governing body whether a Sole Proprietorship, Partnership, Limited Liability Partnership, Limited Liability Corporation, C corporation, or S corporation.
  2. Provide written instructions to the Plan Administrator (or Trustee, if applicable), describing: how the discretionary employer matching contribution formula will be allocated to participants, the period to which the matching formula applies and, if applicable, a description of each business location or business classification subject to separate formulas. 
  3. Communicate these instructions to plan participants and outline the applicable matching formula, the period used to calculate the match, and when it will be deposited.
  • The purpose of the participant notice is to provide a written communication with the matching contribution details sufficient for the match to be definitely determinable for employees.
  • Your recordkeeper or document service provider will likely provide a sample notice for your use.
  • The timing of the notice depends on when you determine and fund the contribution. If you fund annually, the notice must be provided to eligible participants within 60 days after the match has been deposited. If you fund periodically, the notice must be provided to eligible participants within 60 days after the last match has been deposited to the plan for the plan year.
  • To allow participants to make informed decisions about their salary deferral elections, you may consider also providing a notice prospectively. 
  • It is a good idea to keep a copy of the notice in the plan’s records. Failure to satisfy the new requirement is an operational failure. 

Benefit to Plan Sponsors: A carefully crafted participant notice will not only benefit participants by encouraging saving but can also serve to promote the value of the benefit the employer provides.