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Safe Harbor Plan Termination Date: Dec. 31 or Jan. 1?


jessica401(k)
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It probably wouldn't make a difference as I'd doubt the IRS (or DOL) would challenge an amendment timing issue along these lines.  It does, however, make for good water cooler talk.  Let's suppose the plan has 200 "active" employees who are eligible and only 99 with balances.  When you terminate on 1/1, does the beginning of the year participant count equal 200 (e.g. large plan filer) or 99 (now eligible for a small plan filing in the final year)?  I can see the argument where 1/1 effective date is 12:00am (midnight) on December 31st (e.g. effective right at new year's day); where 12/31 would be effective 12:00 midnight on December 30th (one day short of year end).  

In practice, I'd use 12/31 and argue that this is clearly at the end of the year without going into a new year.  However, 1/1 (e.g. effective 12:00 midnight on New Years Eve) would appear to be the most appropriate.  

Again, I believe either of these days would work because they are two ways of stating the same intent.  

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Comment here, not exactly on point, from the Gray Book might be relevant to your question.

 

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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2 hours ago, ETA Consulting LLC said:

When you terminate on 1/1, does the beginning of the year participant count equal 200 (e.g. large plan filer) or 99 (now eligible for a small plan filing in the final year)?

I think you can successfully argue both dates. But in theory, in order to terminate on 1/1, wouldn't it also have to be active on 1/1?  If we terminate on 12/31, lets say at the very end of 12/31, the plan clearly starts 1/1 as terminated and your count is 99.  If it does not terminate on 12/31, it has to start 1/1 as active, right? Technically the count would be 200. I don't think the IRS would ever argue it this way but 12/31 makes more sense to me.

 

 

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2 hours ago, RatherBeGolfing said:

 If it does not terminate on 12/31, it has to start 1/1 as active, right? Technically the count would be 200. I don't think the IRS would ever argue it this way but 12/31 makes more sense to me.

1/1 begins at 12:00 Midnight.  So, that is where the line is drawn.  So, an effective date of 1/1 would say that you ended 12/31 (23:59:59) with 200, but you began 1/1 (00:00:00) with 99.  Technically, this is where the line would be drawn according to the strictest measures.  
In operation, however, I agree with you.  My first inclination was that when you start a new year, you'd first start with the 200 before it is immediately lowered to 99, but that is not actually what happens.  You start 1/1 (at 12 midnight) with 99, but you ended 12/31 at 11:59:59 with 200.

I just illustrate this for purposes of making an argument.  But, when I do an amendment like this, I make it 12/31 while including an interpretative statement in the "SAMPLE" resolution that the amendment is effective at the close of business on 12/31.  

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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  • Dave Baker changed the title to Safe Harbor Plan Termination Date: Dec. 31 or Jan. 1?

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