Mid-Year Change to Safe Harbor Plan

[PMC]

Safe Harbor Plan with enhanced match. No other Employer contributions permitted. Calendar year/plan year. Employer now (effective 3-1-10) wants to amend the Plan to add a Profit Sharing feature. Understand the prevailing thought is can't make changes to a safe harbor plan mid year (couple of limited exceptions) but just wondering what others may have done.

Seems crazy that the rules would not prohibit the Employer from establishing a separate PS Plan for this feature yet not permit the addition of the PS feature to the safe harbor plan.

[Kevin C]

The mid-year amendment restriction you are referring to is in:

1.401(k)-3(e) Plan year requirement

(1) General rule. --Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of sections 401(k)(12), 401(k)(13), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of § 1.401(k)-1(b) if it is amended to change such provisions for that plan year. Moreover, if, as described under paragraph (h)(4) of this section, safe harbor matching or nonelective contributions will be made to another plan for a plan year, provisions under that other plan specifying that the safe harbor contributions will be made and providing that the contributions will be QNECs or QMACs must also be adopted before the first day of that plan year.

The same rule is in 1.401(m)-3.

I read that as saying that if a plan provision satisfies a rule in 1.401(k)-3, then you can't amend that plan provision during the year. I don't see anything in 1.401(k)-3 that refers to a profit sharing contribution, so profit sharing provisions would not be plan provisions that satisfy the rules of 1.401(k)-3. I don't see any reason why you can't add the PS contribution mid-year.

[Guest fresno]

Do you agree that if an employer maintains a calendar plan with a SH contribution, that the adoption of an additional matching contribution provision (discretionary not to exceed 4%) during February 2010, could not be effective until January 1, 2011.

thanks

The mid-year amendment restriction you are referring to is in:

1.401(k)-3(e) Plan year requirement

(1) General rule. --Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of sections 401(k)(12), 401(k)(13), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of § 1.401(k)-1(b) if it is amended to change such provisions for that plan year. Moreover, if, as described under paragraph (h)(4) of this section, safe harbor matching or nonelective contributions will be made to another plan for a plan year, provisions under that other plan specifying that the safe harbor contributions will be made and providing that the contributions will be QNECs or QMACs must also be adopted before the first day of that plan year.

The same rule is in 1.401(m)-3.

I read that as saying that if a plan provision satisfies a rule in 1.401(k)-3, then you can't amend that plan provision during the year. I don't see anything in 1.401(k)-3 that refers to a profit sharing contribution, so profit sharing provisions would not be plan provisions that satisfy the rules of 1.401(k)-3. I don't see any reason why you can't add the PS contribution mid-year.

[Kevin C]

Do you agree that if an employer maintains a calendar plan with a SH contribution, that the adoption of an additional matching contribution provision (discretionary not to exceed 4%) during February 2010, could not be effective until January 1, 2011.

thanks

Yes, I agree that the additional matching contribution provision can not be effective until 1/1/2011. The limits on matching contributions for the ACP SH are in 1.401(m)-3(d)(3). I think that makes the match provisions provisions that satisfy 1.401(m)-3, so under 1.401(m)-3(f)(1), they can not be amended during the year. The only exception for mid-year amendments is if you are are using the rules in (h) for the reduction or suspension of a SH Match during the year, which is not the case here.