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How do we know what outcomes would result from ending a safe harbor?


Peter Gulia

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When a retirement plan has always used a safe-harbor regime (or has used one for many years), the plan’s sponsor might lack information to predict what coverage, non-discrimination, and top-heavy test would show absent the safe-harbor treatment.

 

Consider, while a good-enough sense of this information might be obvious to those with the data, it might be almost an unknown to the plan’s sponsor, and might be a complete unknown to the plan sponsor’s lawyer.

 

If a plan’s sponsor wants information to help the sponsor decide whether to discontinue a safe-harbor contribution, how quickly does a recordkeeper or third-party administrator turn around that testing?

 

(While I know it’s often not a realistic assumption, assume complete and clean data.  And assume the service provider’s fee is paid in advance.)

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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No problem. A tpa can perform testing based upon either assumed current year census/salary/deferral data, or utilizing prior year data, or a combination - whatever the employer wants. And the results are only as accurate as the data provided or assumed. Lots of times certain things are known - for example, top heavy status - plan is already top heavy but for being "deemed" not top heavy under the safe harbor rules. ADP/ACP tests in prior year would have failed miserably but for safe harbor. Etc. - so a full projection may not be really necessary for the TPA to give an employer a good idea of results of amending out of safe harbor.

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Belgarath, thank you for your quick response.

 

It works when the plan’s employer/sponsor/administrator has had a continuing relationship with a quality TPA.  But what if a recordkeeper never did any testing?  A service agreement might have omitted testing if the employer believed, assuming a safe harbor, there was no need for it.

 

If the starting point is no preceding information, is it feasible for a TPA to turn around tests in a couple of business days after getting data?

 

(We recognize the quality will be GIGO.)

Peter Gulia PC

Fiduciary Guidance Counsel

Philadelphia, Pennsylvania

215-732-1552

Peter@FiduciaryGuidanceCounsel.com

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48 minutes ago, Peter Gulia said:

If the starting point is no preceding information, is it feasible for a TPA to turn around tests in a couple of business days after getting data?

Theoretically? Sure! It depends on how busy the TPA is and how good the client is about responding to requests for information. For a small plan without a lot of complications, and a sponsor who responds quickly and accurately to email queries? That's probably reasonable.

If you're talking about a plan with hundreds/thousands of lives, sponsors who don't get back to the TPA on needed info, contributions reported by the sponsor that don't tie to recordkeeper-provided totals, unusual situations that require a lot of manual review (say, early entry for 401(k) participation and a workforce that has lots of terminated/rehired employees, so it's not clear at a glance who's statutorily excludable for testing purposes) that might not be reasonable at all.

Speaking of GIGO principles: I would also add that if it looks like the data is incomplete or a mess and the sponsor is not going to be forthcoming with the info that's required, some TPAs might not be willing to take that work on at all.

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AGREE with all--the smaller the plan, the fewer the HCEs and the more accurate the census, the easier this is to do.

Ten, fifteen years ago or longer before SH, we used to psych out the results for smaller plans so they'd know what

the outcome would be. But with a larger plan, depends on the available data, agility and skill of the TPA.

 

 

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