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Safe Harbor 401k Plan Termination


mming

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An employer recently decided to terminate their calendar year 401k asap and would prefer to have 2019 be the last year that admin is needed.  The SH contribution is the 3% nonelective.  I wanted to make sure I have the right procedure in mind after trying to read the regs but finding conflicting information on some of the threads here.     

If I understand, the soonest that the plan can be terminated is no earlier than 30 days after the issuance of a participant notice which says that the plan is terminating and how the employer's obligation to make SH contributions will end on the plan termination date.  At this point it looks like 9/15/19 would be a likely plan termination date.  A 'maybe' SH notice was not issued for 2019.

The employer will need to not only contribute the 3% SHNEC based on compensation through the date of the plan termination, but also pass the ADP test if any deferrals are made by the HCEs.  The plan also allows for cross-tested PS contributions, and if any are made the ACP test would need to also pass.  The 415c, 402g and 401a17 limits would all be pro-rated for an 8.5 month short plan year.   

All contributions must be made during 2019 and all assets must be distributed by December 31, 2019.  A 5310 will not be submitted.  Is there anything that is being overlooked?  Thanks in advance for all help.

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A couple of observations - the 402(g) limit is a calendar year limit, and isn't pro-rated. Also, and you've probably encountered this - it is sometimes impossible to get the payouts done in time - sometimes participants just refuse to send their forms back in on a timely basis, and if you have many that are over the cashout limit, you may not be able to get it wrapped up by the end of the year. We always tell clients this in similar situations where they are anxious to get everything wrapped up before the end of a year. Also, watch out for top heavy if you have had people enter mid year and the plan excludes comp prior to participation date. (I'm assuming this termination is not due to "business hardship.")

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15 hours ago, mming said:

 

If I understand, the soonest that the plan can be terminated is no earlier than 30 days after the issuance of a participant notice which says that the plan is terminating and how the employer's obligation to make SH contributions will end on the plan termination date.  At this point it looks like 9/15/19 would be a likely plan termination date.  A 'maybe' SH notice was not issued for 2019.

The 30 day notice requirement is only if the plan is continuing, but suspending the safe harbor. If the plan is completely terminating, usually 30 day notice is not required, immediate notice is sufficient. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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  • 4 years later...

Following up on this issue on the irs.gov page on Participant Notices (not separating DB and DC):

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-notices
 
There is this that says 60 to 90 days notice of plan termination is required:
 
Notice that the employer is terminating the plan

When a plan is to be terminated, participants should receive a written notice of the company's intention to terminate the plan and a notice of plan benefits. See Terminating a Retirement Plan.

Notice of intent to terminate: The Notice of Intent to Terminate should contain sufficient information to notify the participant of the termination of the plan. The notice might include identifying information such as:

  • the plan name and number;
  • the proposed termination date;
  • a statement concerning the cessation of accruals (benefit accruals are ceasing); and
  • a statement that there are sufficient plan assets to meet the accruals provided under the plan.

The notice must be provided to all affected plan participants and/or beneficiaries at least 60 days and no more than 90 days before the proposed date of termination.

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