MWeddell

Lou: If you fail the BRF (and catch it within 9½ months after year end), then you can probably extend Roth availability to enough NHCEs to pass the BRF test prospectively and it is treated as correcting the BRF failure for the plan year you are testing. That's the way most BRF corrections work with the prominent exception of an available match rate failure which requires some corrective contributions. It still might not make good plan design sense, but you and I aren't close enough to the original poster's situation to evaluate that.

I disagree with Lou S. For a 403(b) plan, if employees can make Roth 403(b) contributions, then all employees of that particular employer (ignoring the controlled group and affiliated service group rules) must be allowed to make Roth 403(b) contributions. Treas. Reg. Section 1.403(b)-5(b)(1)(last sentence). For a 401(k) plan, the plan document may specify that some and not all eligible employees may make Roth 401(k) contributions. It is subject to benefit, right or feature testing. Treas. Reg. Section 1.401(k)-1(a)(4)(iv)(B)(second sentence).

If the individual was able to make elective deferrals from his / her post-severance compensation (if the deferral percentage was not 0%), then the individual was an eligible employee and should be included in the ADP test.

The safe harbor match may be increased in some circumstances. See Section III.D.4 of Notice 2016-16: https://www.irs.gov/pub/irs-drop/n-16-16.pdf If you want to reduce the match mid year, see Section III.B(iii) of the same notice. It's generally not allowed except as permitted in the regulations. The regulations allow the reduction if the plan loses its safe harbor status and if the employer is operating at an economic loss or the safe harbor notice contained text reserving this right.

Yes, you can maintain the safe harbor status of the Buyer's plan as long as it separately satisfies coverage testing. The transition period rule is one method for which it can separately satisfy coverage testing.

It's my view (and I've seen others within my company and elsewhere agree) that automatic enrollment is not a benefit, right or feature subject to non-discrimination testing. So that eliminates another barrier if one implements auto enrollment for only some eligible employees in a plan.

I agree that the quoted portion of IRS Notice 2016-16 allows one to amend a safe harbor plan mid year to modify or add a matching contribution. It does not allow one to convert a non-safe harbor plan to a safe harbor plan midyear.

I agree with Kevin C. Where the match is used to fulfill the safe harbor conditions, this rule is part of the 401(k) safe harbor rules. Kevin provided the citation to the regulation.

Code Section 416(g)(4)(H) is ambiguous to me. However, Rev. Ruling 2004-13, especially Example 1, makes clear that one interprets the top-heavy exclusion based on whether other contributions (including forfeitures allocated as contributions) are made. So I agree with C.B. Zeller that the plan does not lose the top-heavy exclusion if it permits employee after-tax contributions but none were made.

"Each eligible NHCE" refers to each NHCE that is eligible to make elective deferrals, so it is those who are eligible for the 403(b) plan.

I don't think it works. Treas. Reg. 1.401(k)-3(c)(1) requires a safe harbor match to be made on behalf of each eligible NHCE. I know you don't care about meeting the 401(k) safe harbor rules, but that requirement is incorporated into the 401(m) safe harbor rules. See 1.401(m)-3(c). Providing matching contributions to only some of the NHCEs cannot be a safe harbor match. Now, there are a couple of exceptions if one can disaggregate the 403(b) plan into multiple "plans" such as union v nonunion or < age 21 or < 1 year of service versus those above those thresholds.

The automatic contribution increase can take place in the middle of a plan year for an EACA. The default contribution rates for those who do not affirmatively elect otherwise must meet the minimum 3% / 4% / 5% / 6% rates listed in the regulation, but eligible employees may get to those levels sooner than required. To make this amendment mid-year, the plan likely will need to provide updated safe harbor notices to participants. On question #2, I also am skeptical that you could do that without violating the uniformity rule.

The deadline for adopting a discretionary amendment is the last day of the plan year in which the amendment becomes effective. The IRS established this deadline in roughly 2007. So, no, it is not permitted to adopt an amendment now for a plan year that ended 1/31/2021.

Not that the original poster is still waiting for an answer, but let's answer this one anyway given that I researched it today. If a 403(b) plan is subject to ERISA, then it is subject to ERISA Section 204(g), which is essentially identical to Code Section 411(d)(6). It is subject to the Treasury Department regulations issued under 411(d)(6), Treas. Reg. Section 1.411(d)-4, which is made clear if one reads ERISA Section 204(g)(5). So, yes, the protected benefit rules apply to an ERISA 403(b) plan.

See Section III.D.4 of IRS Notice 2016-16: https://www.irs.gov/pub/irs-drop/n-16-16.pdf. Other than clarifying that the match for HCEs is not safe harbor match, I don't see that Notice 2020-52 directly pertains to your issue. A matching contribution for a safe harbor that that is not part of the safe harbor match may be increased with a mid-year amendment. There are conditions. Must be at least 3 months left in the year. Must be retroactively made for the whole year. A new safe harbor notice describing the amended match formula must be distributed. As an alternative, look carefully at the amendment that suspended the match for the HCEs last year. Maybe it left the possibility for resuming the match for HCEs as a discretionary match, in which case no mid-year amendment might be needed and you can avoid the above rules. Good luck!

Higher costs if a plan is top-heavy? (Obviously, there are safe harbor 401(k) plans that are exempt from the top-heavy rules, so it may not be relevant depending on the plan design.)

I agree. It is allocated in proportion to pay and the definition of compensation must satisfy 414(s) or else it wouldn't be a SHNEC. You must not have any unusual allocation conditions on it. In those circumstances, your plan will satisfy a 401(a)(4) safe harbor and will not require general amounts testing.

Rules are in Treas. Reg. Sections 1.401(m)-3(j)(2), 1.401(m)-3(j)(6), 1.401(m)-2(a)(5)(iv) and 1.401(m)-2(a)(6)(vi). You are correct that an ACP test is required for a safe harbor plan what allows traditional (non-Roth) employee after-tax contributions. The match may be included or excluded from that ACP test. If the plan meets the 401(k) but not the 401(m) safe harbor rules, one can also include just part of the match in the ACP test -- see the regulation for details. If a SHNEC is used to satisfy the 401(k) safe harbor rules, one can't also use those dollars in the ACP test.

You cannot convert or restate a 401(k) plan as a 403(b) plan. Seriously re-consider keeping the 401(k) plan. It is legally permitted to terminate the 401(k) plan and start up a new 403(b) plan from scratch.

The contributions will definitely be made to the plan, not the participant's IRA.

IRS unofficial guidance from https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit says that So the contributions -- all contributions regardless of the type in my view -- should continue to be made even after the cap ($285,000 in 2020 or $290,000 in 2021) was reached unless the plan document expressly states otherwise. One can enforce the compensation limit indirectly by capping the amount of elective deferrals (Code Section 402(g) usually is more restrictive anyway), the amount of match and the amount of traditional non-Roth after-tax contributions.

There have been informal comments by the IRS at industry conferences essentially saying, in the context of discussing BRFs of the available rates of elective deferrals, that there is no test on the definition of compensation used for elective deferrals. Just make sure the ADP test uses a 414(s) definition of compensation and that highly compensated employees are determined using a 414(q) definition of compensation.

I also agree to look to the plan document. However, the document might state that one may, but is not required, to use just compensation during the portion of the plan year during which employees are eligible to make elective deferrals.

The vesting regulations are so very old that they don't have (to my knowledge) provision specifying how they apply to a defined contribution plan with various contribution sources: elective deferrals, match, employer nonelective, QMAC / QNEC, safe harbor contributions, and possibly further subdivisions as defined in the plan document. On the other hand, we "know" (or at least its a universal consensus view) that one can have different vesting schedules to some extent for these contribution sources. So I lean toward yes, that one can preserve the two-year cliff vesting schedule for QACA SHNE without having to switch it to a traditional SHNE. I wish I could cite a regulation that gives me 100% confidence in the answer.

It can't be done under Notice 2016-16 because the change in compensation would reduce the safe harbor contributions. See Section B(iii) of the Notice. See also Section D.4 of the Notice that fairly clearly implies that a reduction in the compensation definition is covered by that prohibition. So it can only be done mid-year to the extent the regulations permit it.