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Safe Harbor Plan Termination


AmyETPA
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Owner is thinking about retiring and shutting down his business, no sale.  Since business is terminating would plan still be considered safe harbor even if terminated mid-year?  It's not a sale or merger so I'm questioning myself.  

 

 

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On ‎7‎/‎22‎/‎2020 at 2:26 PM, AmyETPA said:

Owner is thinking about retiring and shutting down his business, no sale.  Since business is terminating would plan still be considered safe harbor even if terminated mid-year?  It's not a sale or merger so I'm questioning myself.  

 

 

AmyETPA, Treas. reg. 1.401(k)-3(e)(4), which you should look at for detail, treats a short plan year in connection with a termination of the plan as if a full year, i.e. you are still safe harbor for short year. But you have the same notice requirements as if amending to drop safe harbor, but continuing plan.

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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A SH plan terminating mid-year remains safe harbor for the short final year if the termination is in connection with a 410(b)(6)(C) transaction or the employer incurs a substantial business hardship.  If you don't meet one of those criteria, you have to satisfy the rules for reducing or suspending the SH contribution in 1.401(k)-3(g), which means it is not safe harbor for the short final year.
 

Quote

 

1.401(k)-3(e)(4) Final plan year. A plan that terminates during a plan year will not fail to satisfy the requirements of paragraph (e)(1) of this section merely because the final plan year is less than 12 months, provided that the plan satisfies the requirement of this section through the date of termination and either

(i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor contributions, other than the requirements of paragraph (g)(1)(i)(A) or (g)(1)(ii)(A) of this section (relating to the employer's financial condition and information included in the initial notice for the plan year) and paragraph (g)(1)(i)(D) or (g)(1)(ii)(D) of this section (requiring that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections); or

(ii) The plan termination is in connection with a transaction described in section 410(b)(6)(C) or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(c).

 

You said he isn't planning to sell his business.  Will he be selling the assets of the business?  See 1.410(b)-2(f).  If not and the SH is important, he should consider terminating at the end of the year.

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4 hours ago, Kevin C said:
4 hours ago, Kevin C said:

A SH plan terminating mid-year remains safe harbor for the short final year if the termination is in connection with a 410(b)(6)(C) transaction or the employer incurs a substantial business hardship.  If you don't meet one of those criteria, you have to satisfy the rules for reducing or suspending the SH contribution in 1.401(k)-3(g), which means it is not safe harbor for the short final year.

On closer examination, I think you're right, Kevin C. Treas. reg. 1.401(k)-3(g)(1)(E).

 

Luke Bailey

Senior Counsel

Clark Hill PLC

214-651-4572 (O) | LBailey@clarkhill.com

2600 Dallas Parkway Suite 600

Frisco, TX 75034

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