Amending a PS plan to add a Safe Harbor 401(k) provision
Posted 11 October 2007 - 03:35 PM
A profit sharing plan has an August 31st year end. The employer just contacted us about adding a Safe Harbor 401(k) feature and changing the plan year. So there would be a short plan year from September 1 to December 31. If we had added the Safe Harbor feature by October 1, would that have worked?
I've read about the exception if the short plan year is created by an amendment (which we would do), but the 2 conditions confuse me:
1) the plan year immediately preceding the short plan year (Sept. 1, 2006 -- Aug. 31, 2007) satisfied the 401(k) safe harbor rules. (How could it do that? It wasn't a safe harbor plan then.) AND
2) the plan year immediately following the short plan year also satisfies the 401(k) safe harbor rules (no problem).
It seems to me that even if we had met the October 1 deadline, the client still couldn't convert to a safe harbor plan in 2007. But can we convert to a safe harbor plan beginning January 1, 2008?
Posted 12 October 2007 - 06:15 AM
you can always covert an existing profit sharing to a safe harbor as long as the first year is at least 3 months long, so you should have been able to put one in place by 10/1. you could not convert an existing 401(k) plan to a safe harbor plan mid year.
Posted 12 October 2007 - 08:56 AM