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Honestly, that's the participant's problem, not the plan's or plan sponsor's. Maybe that sounds harsh, but it's still more or less a free country and people are free to make their own choices and decisions, even if they are not necessarily the "best" choices. And who's role is it to determine what is "best" for a given participant in a specific situation? Maybe he or she really needs money NOW for something important and is willing to deal with the consequences later. IRS offers payment plans and in more extreme cases OIC.

Welcome to BenefitsLink. There is no guidance, either formal or informal, regarding mergers or spinoffs of safe harbor plans. There was a section for it in the 2006 final regs, but it only said "reserved". In absence of guidance, a reasonable, good faith interpretation of the code is your best option. It would be helpful to know your role in this. It may affect the advice you will get from others. You'll also want to keep in mind that whatever route they take, they will need cooperation from the new service providers and probably the old ones, too. If the new service providers don't have someone qualified to assist them, the plan sponsors may want to reconsider their choices. We have, in the past, handled similar situations and continued the safe harbor for the participants for the entire plan year, with the understanding that we might have to justify it to the IRS at some point. That's a judgment call and not everyone will make the same decision. Hopefully, we can get a discussion going.

When does he "exceed" a limit. That will determine which Plan year the catch-up is assigned to. A lot of it has to do with what plan year the contribution is tested in. He only gets one calendar year catchup limit. If he exceeds $18,000 in 1/1 - 9/30 plan year then that is catchup for calendar year 2017 and Plan Year 9/30/2017 There are other cases such as failed testing that might have the catch-up in PYE 9/30/17 or hitting another Plan limit, such as 415 that could make some of his 1/1/17 - 9/30/17 catchup in the 9/30/17 plan year. It gets important to track which calendar year catch-up is assigned to which off calendar year plans for testing and allocation reasons.

I guess the net effect, you can intentionally beat the system by taking a loan and then defaulting. so much for no in service withdrawals of safe harbor contributions, etc.

It is clearly not preempted by ERISA since ERISA does not require repayment by payroll deduction. I struggle to justify why an agreement made between employee and employer should carry more weight than state law. To prohibit what choice? Payroll deduction altogether? I guess they could amend the plan to say you can't stop your payroll deductions, but since they can't actually prohibit the participant from doing it, all it would do is create an operational failure for the plan...

I'd be curious to know in what state you could say "I'm sorry but you have to maintain this otherwise optional deduction from your pay." None, I believe. RBG beat me to it - this is an administrative requirement, not an ERISA requirement, IMO.

Well, that isn't quite how preemption works. Think of it more like if ERISA requires something to be done, it would most likely preempt a state law to the contrary. But every provision in a plan document is not an ERISA requirement. Loans have to be repaid, but ERISA does not require that the loan be repaid by payroll deduction. Drafting a plan document requiring that the loan be repaid by payroll deduction does not preempt state labor law, it just means that it is the only option provided to the participant to repay the loan, and that the participant will default on the loan if payroll deduction is stopped.