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Greetings, Whyneye, and welcome. You asked:

<<We have a simple retirement plan at work. It is to be terminated January 1st to be replaced by a 401(k). The simple plan has been in effect about 2 1/2 years. I read that the employer must match 3% a year, but out of every 5 years may elect 2 years to pay only 1%. The first year he matched 1%, the second 3%. My question is, can he get by with matching just 1% for this last year? It seems to me that since he's bailing before the 5 year time span, he must pay 3%. After all I will not get 3% for the final 2 years because he's switching to the 401(k).>>

Yes, your employer can. The five-year period looks backward, not forward. In years the plan didn't exist it is deemed by the IRS to have met the 3% contribution requirement. Your five years thus probably runs from 1996 through 2000. In 1996 and 1997 your employer is credited with making a 3% contribution. In 1998 he gets 1%, in 1999 he gets 3% again, so this year he can use 1% if he so chooses. By doing so, he meets the "not more than two years out of five" requirement for making the smaller contribution.

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