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Change to Safe Harbor Formula


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I know the Secure Act changed the notification requirements, etc but wasn't sure the impact on this.

Have a case that wants to change from a 3% Safe Harbor to a Basic Safe Harbor Match as of 1/1/21.  Is there a deadline for the amendment to be signed/notice to be given to the employees?

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The SECURE Act didn't change anything with respect  to safe harbor match notices. It still has to be provided within a reasonable amount of time before the beginning of the plan year. 30 days before the beginning of the plan year is automatically considered reasonable for this purpose.

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I agree with CuseFan for both the notice and the amendment. I speculate that there is language in the plan document reflecting both of the following regulatory deadlines.

 

Regulation 1.401(k)-3(e)(1) states the general rules that a safe harbor method must be in place (adopted) before the first day of the plan year (i.e. 12/31/20 for a 1/1/2021 safe harbor). The only exception to that general rule appears to be only for a plan that is “activating” a nonelective safe harbor method midyear, as follows.

 

Regulation 1.401(k)-3(f)(1) states that the deadline for both the amendment and the supplemental notice regarding that amendment to change from the ADP test method (using current-year data) to the nonelective safe harbor method is 30 days prior to the end of the current plan year.

 

Thus, subsection (e) applies if the plan that was already a safe harbor plan on the first day of the current plan year, and subsection (f) applies if the plan meets the requirements for converting into a nonelective safe harbor midyear and chooses to do so, in which case there is an earlier amendment deadline.

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20 hours ago, Jakyasar said:

Don't you need the amendment in place to provide the notice? Just curious.

I wouldn't worry about that too much. The date for the notice is a safe harbor anyway. If the owner woke up on December 30 and decided to make the plan safe harbor, you could do the amendment and the notice the same day and make a facts & circumstances case that it met the requirements.

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