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Plan Termination Safe Harbor Match + Top Heavy


Lou S.

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A plan wants to terminate mid year and is a safe harbor matching 401(k) plan. The plan has always made deferrals and safe harbor match only. The plan is top-heavy and relies on the exemption from T-H status due to SH match.

Am I correct in the following

1. 30 day notice to employees is required to cancel the match.

2. The plan will be subject to ADP/ACP testing for the year of termination.

3. The sponsor will need to make top heavy minimum contributions for the year of termination (because the exemption no longer applies).

Is there an exception for terminating plans that I am missing where one or more of the above would not apply?

Thanks in advance for any thoughts.

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  • 11 months later...
Guest Williams
A plan wants to terminate mid year and is a safe harbor matching 401(k) plan. The plan has always made deferrals and safe harbor match only. The plan is top-heavy and relies on the exemption from T-H status due to SH match.

Am I correct in the following

1. 30 day notice to employees is required to cancel the match.

2. The plan will be subject to ADP/ACP testing for the year of termination.

3. The sponsor will need to make top heavy minimum contributions for the year of termination (because the exemption no longer applies).

Is there an exception for terminating plans that I am missing where one or more of the above would not apply?

Thanks in advance for any thoughts.

I'm interested in knowing how you resolved this situation. I also have a SH Matching contribution plan, want to terminate quickly and trying to find out if the 30-day notice is necessary when terminating a sf plan.

thanks

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It depends on the circumstances.

1.401(k)-3(e)(4) Final plan year. --A plan that terminates during a plan year will not fail to satisfy the requirements of paragraph (e)(1) of this section merely because the final plan year is less than 12 months, provided that the plan satisfies the requirement of this section through the date of termination and either --

(i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor matching contributions, other than the requirement that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections; or

(ii) The plan termination is in connection with a transaction described in section 410(b)(6)© or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(d).

If you are under (i), 30 days advanced notice will apply because the notice is part of paragraph (g). Paragraph (g) also includes amending the plan to require ADP/ACP testing using the current year method. If you are under (ii), the notice isn't required and the plan stays SH for the short final year.

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