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Safe Harbor Match Eligibility


kdubinski

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I have a 401(k) plan which utilizes a safe harbor matching contribution.  Prior to 1/1/2018, the eligibility for all contribution sources was date of hire.  The plan's entry dates prior to 1/1/2018 were date of hire.  Highly compensated employees are excluded from receiving a safe harbor matching contribution.

Effective 1/1/2018, the eligibility for safe harbor match was amended to 1 Year of Service.  The entry dates were amended to 1/1 and 7/1.

Unfortunately, it has been discovered the client has continued to use date of hire for eligibility and entry date purposes for the safe harbor matching contribution.

My question, can an amendment be done now to take the safe harbor matching contribution eligibility back to date of hire and the entry date back to date of hire for 2018?  For 2019, the plan would move forward with the 1 Year of Service requirement and dual entry dates.

The plan does have a discretionary profit sharing contribution component.  The eligibility is date of hire and the entry date is date of hire.  Vesting is 100% immediate for all contribution types.  The ineligible safe harbor matching contributions could be characterized.

Any thoughts would be appreciated.

Thank you.

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I'm going to assume that the 1/1/18 amendment was done timely, before 1/1/18. 

Correcting under SCP using a plan amendment is addressed in Rev. Proc. 2016-51 4.05 (2). It refers you to Appendix B 2.07 for the only situations that can be self corrected by an amendment.  Fortunately, your situation is in 2.07 (3), so it can be self corrected using an amendment as described there.  The amendment wouldn't cause any 411(d)(6) problems and it isn't listed in Notice 2016-16 as a prohibited mid-year amendment to a safe harbor plan, so I don't see any problem with amending to retroactively make the old immediate eligibility requirements apply for 2018.  I suggest you make sure the amendment is clear about whether those included early for 2018 will remain participants in 2019 and future years, or if they will have to meet the new requirements starting in 2019.  The change  back to the intended requirements for 1/1/2019 will need to be adopted before 1/1/2019.  If the corrective amendment is signed during 2018, I think you can do both in the same amendment.

Another option is that, as long as the listed conditions are met, 2.07 (3) allows the corrective amendment to apply to only those who were improperly allowed to participate.  You can list them by name.  That would correct the failures, but still have the new eligibility requirements apply to those hired later in 2018. 

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