ER Changed Mind & no contributions

[SFSD]

An Employer went to all the work to establish a 401(k) plan with a 4% Safe Harbor matching formula but never announced the plan to their employees. Now they have decided they don't want to proceed and the plan has been in effect since the beginning of the year. Do they need to file a 2010 Form 5500? Would your answer change had they elected the 3% Non-Elective Safe Harbor formula?

[12AX7]

Plan? What plan? Who saw a plan?

Seriously for a moment...I would argue that for each plan year a 5500 must be filed, but that perhaps is the easy part. I could perhaps see a red flag go up if the plan files a first/final 5500 with no plan assets.

On the other hand, if the plan document was executed and stuffed into the back of the filing cabinet and no employee knew the plan exists, then how would you or any other party know if it exists? I'm speaking hypothetically here.

[K2retire]

And they still owe that safe harbor non-elective contribution from the time of the beginning of the plan until the time it is officially terminated.

[12AX7]

The OP indicates that the plan is a SH Match. Nothing should be owed if there were no deferrals. The reference to the SH Nonelec seems to be a hypothetical question, in which case I would agree with you!

[SFSD]

My apologies for the incomplete initial posting! No contributions were ever made to the plan. The debate is when is a plan created including the need to file 5500's - when the documents are signed, when the trust is funded, when the plan is announced to the employees?

[Bird]

I think if you try to do this "right" you will have to address the issue of not offering the 401(k) deferral part of the plan to the employees, and make up for those potential lost contributions and matches associated with them. Not pretty. As noted, if no one knows the plan exists, than maybe it doesn't exist...

[Bill Presson]

I think if you try to do this "right" you will have to address the issue of not offering the 401(k) deferral part of the plan to the employees, and make up for those potential lost contributions and matches associated with them. Not pretty. As noted, if no one knows the plan exists, than maybe it doesn't exist...

If a document falls into a shredder and no one is there to see it, does it make a noise?

[GMK]

Shredder? I thought it was a copier. (Yah, right.)

What about the notes in the minutes or resolution or whatever that authorized the establishment of the plan? Wite-out?

The web is getting tangled.

[Tom Poje]

fascinating.

so if it is deemed a problem, arguably it is a significant problem since it involves all employees.

But SCP is only available for significant problems if there is a determination letter.

Since no one knows about, no determination letter must have been made, because other the proper notices would have been followed.

[Andy the Actuary]

It is disappointing that benefits professionals would even joke about taking the low ground. If a document was signed, you got a plan. The client should seek legal advice on this one.

[PensionPro]

Employer adopted a 401(k) plan but did not give employees the opportunity to contribute, so you have an operational error. The employer can not retroactively decide not to proceed after adopting the 401(k) plan. The plan has bigger issues than whether or not to file Form 5500. From what I am remembering, the employer will have to correct so the employees would receive the maximum SH they would have been entitled to.

"Announcing the plan to the employees" is a requirement, not an option. The plan needs an attorney, not an Arthur Anderson OutBox aka Shredder.

[Bill Presson]

It is disappointing that benefits professionals would even joke about taking the low ground. If a document was signed, you got a plan. The client should seek legal advice on this one.

Really. I can't even make a joke anymore?

[K2retire]

It is disappointing that benefits professionals would even joke about taking the low ground. If a document was signed, you got a plan. The client should seek legal advice on this one.

Really. I can't even make a joke anymore?

Sadly, there are those who would not recognize the joke. Even more sadly, there are probably plenty of folks who would avise using the shredder and forgetting the whole issue. (I talked to several such folks who didn't believe that they needed to restate their GUST document since they "changed their mind" and never funded it the plan just this week.)