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oldman

Amending a safe harbor plan mid year

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Can a safe harbor plan amend the plan mid year to add a 59-1/2 withdrawal feature. I believe changes can only be made as of the first day of the next plan year. The exception, as noted in IRS announcement 2007-59, woudl be to add a Roth feature or hardship withdrawal.

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Q & A #8 at the 2009 Annual Conference posed the question of mid year changes, IRS said no further guidance other than Notice 2007-59 which only permits addition of Roth and hardship withdrawals. IRS was also asked this question informally at the 2008 conference. IRS was not receptive either year to making comments or exceptions to the Notice.

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Announcement 2007-59 says that changing a safe harbor 401(k) plan mid-year to add either Roth deferrals or hardshp withdrawals will not cause a plan to lose safe harbor status. It does not say those are the only changes that can be made. I'm aware that the IRS won't be issuing additional guidance. But, the issue is already addressed in the final 401(k)/401(m) regulations.

1.401(k)-3(e)(1) General rule. --Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of sections 401(k)(12), 401(k)(13), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of § 1.401(k)-1(b) if it is amended to change such provisions for that plan year. Moreover, if, as described under paragraph (h)(4) of this section, safe harbor matching or nonelective contributions will be made to another plan for a plan year, provisions under that other plan specifying that the safe harbor contributions will be made and providing that the contributions will be QNECs or QMACs must also be adopted before the first day of that plan year.

Since neither Roth nor hardship provisions are included in 1.401(k)-3 or 1.401(m)-3, they are not "provisions that satisfy the rules of this section", 1.401(k)-3.

This topic has been argued extensively in other threads.

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I dont know if you were at the ASPPA Q&A's when the IRS was asked point blank if plan provisions could be changed, and given specific examples. They would not say yes. So I think there is no clear yes from the IRS at this point and an employer wanting a mid year change should be advised to act with caution.

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If you are talking about the ASPPA annual conference, I was there for 2009, 2008, 2007, ...

I guess it all depends on whether you see the glass as half full or half empty. The IRS refused to say yes, but they also refused to say no. Until they issue further guidance, all we have to go by is the guidance they have already given. I think the final 401(k)/401(m) regulations are pretty clear about what kind of provisions can not be amended mid-year.

Since you seem to interpret this section of the regs as preventing any amendments at all to a SH plan mid-year, I'm curious. Were any of your SH plans restated for EGTRRA mid-year?

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Possibly some take over plans that were still on a GUST document with their prior provider, otherwise most likely no. On this group the adoption agreement provisions were never changed mid year, client had to wait until next plan year which sometimes involved preparing 2 sets of documents.

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Page 4 of this ASPPA ASAP on qualified plan amendments, optional and required, for 2009, has as optional PPA plan provision Announcement 2007-59 language on mid year changes to safe harbor plans - ie to add Roth or hardship withdrawal for beneficiaries.

I find this interesting! Does this imply you need this language in the plan in order to make these 2 changes, as no other changes are listed.

http://www.asppa.org/document-vault/pdfs/asaps/09-42.aspx

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