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Mid Year Owner exclusion from Safe Harbor Match

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Under the revised rules for amending a safe harbor plan mid year, the plan may not reduce the number of employees eligible to receive safe harbor contributions.

What if the mid year amendment were to exclude only the owners from receiving the safe harbor match?

Would that be possible, and if so, I'm assuming this would need to be a prospective amendment (not eff 1/1/2019)?  Owners have not deferred yet in 2019 anyway.


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Even if you ignore the safe harbor rules, it would be a 411(d)(6) violation.  The conditions required to receive a contribution for the plan year become a protected benefit after they have been satisfied for that plan year.   See 1.411(d)-4 Q&A 1 (d)(8).  There can't be any allocation conditions on the safe harbor contribution, so its allocation conditions have already been satisfied for the plan year starting 1/1/2019. It can be effective 1/1/2020 with a timely amendment.

If they want it bad enough to change the plan year, that can work. But, be careful of the short plan year rules in 1.401(k)-3(e)(3).

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From a purely technical reading of IRS Notice 2016-16, I would say it is not permissible to amend the plan to exclude the owners, since the amendment is prohibited if it narrows the group of employees eligible to receive the safe harbor contributions.  There is no exception mentioned for HCEs, etc.  

However, I doubt the IRS would care that the owners were excluded from the safe harbor and a plan document can certainly be drafted to specifically exclude HCEs or owners from the safe harbor contribution.  I would definitely make the amendment prospective though, not effective back to 1/1.

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A work around might be to have him reduce his 401(k) contribution to a level where the 401(k) + safe harbor match = the total amount he wants to contribute.

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