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austin3515

Discontinuing Safe Harbor Contributions

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So one of the requirements to disconitnue Safe Harbor contributions is that the safe harbor notice had to say "the employer reserves the right to discontinue the safe harbor contribution."

Then comes the SECURE Act and says "you don;t need to send the safe harbor notice for 3% SHNEC plans,"  If we take that advice do we still get the flexibility of discontinunng the safe harbor?  Apparently there is an exception to this notice requirement if they are operating at an "economic loss" but I'm just wondering if they tricked us into eliminating an available option.

 

Note:  I have already discovered that this rule is essentially meaningless because we almost always include a discretionary ACP Safe Harbor Match even if we never use it.  And in this scenario a SH Notice is still required.

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2 hours ago, austin3515 said:

So one of the requirements to disconitnue Safe Harbor contributions is that the safe harbor notice had to say "the employer reserves the right to discontinue the safe harbor contribution."

Then comes the SECURE Act and says "you don;t need to send the safe harbor notice for 3% SHNEC plans,"  If we take that advice do we still get the flexibility of discontinunng the safe harbor?  Apparently there is an exception to this notice requirement if they are operating at an "economic loss" but I'm just wondering if they tricked us into eliminating an available option.

 

Note:  I have already discovered that this rule is essentially meaningless because we almost always include a discretionary ACP Safe Harbor Match even if we never use it.  And in this scenario a SH Notice is still required.

Didn't the economic loss exception exist before the "maybe not" notice though? They just added the option of suspending with certain consequences if you  included that in the SH notice.

The real change made by SECURE is the ability to add SHNEC mid year rather than before the plan year started.  In order to do that, they had to remove the notice requirement or there would always be a failure.  Hopefully we can get some guidance if the IRS isn't dealing with disaster after disaster. Then again, the only time we would take advantage of not providing the notice would be if we had to put in a mid year SH.  Safe harbor notices just don't take that much time and are often combined with other notices anyway.

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My understanding is to discontinue the SH mid-year the Safe Harbor Notice has to say this is a possibility.  The only exception that would allow discontinuance absent the language in the notice is the economic loss exception.

So no notice, no economic loss, no discontinuing the safe harbor contributions.  So even a sharp drop in profitability is not a good enough reason.  Think about a medical practice that is now cancelling all elective surgeries or a dentist cancelling all cleanings.  They'll still make money but might still see the need to discontinue.  If they opted not to send out the Safe Harbor Notice they would not have the option to discontinue.

ie., do others agree that even a SH plan should ALWAYS send the Safe Harbor Notice out for this reason? 

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Another thought that came up is with the Secure Act - can a plan, assuming notice was done, discontinue SH non-elective contributions, but at a later date - amend to be a Safe harbor plan for the year.  Clients are wondering how long this will last - if it is only a few months they might be okay by the end of the year.  If not, they want to stop the bleed, sooner, rather than later.

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But you agree with me that you would be at a disadvantage if a client had taken advantage of the relief and not distributed the safe harbor notice?

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I did an online seminar and they were recommending that we still do the notice until it was clarified.  Not sure - gray area.  I would say in these conditions, they will have to come up with something as we are going to see Safe Harbor plans drop.   Not sure this is on the top of the list right now. 

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There will be.  IRS and DOL are both working hard on it.  Contribution issues is part of what they are looking at.  ARA is also lobbying for legislative relief, which can go beyond what the agencies can do.

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