Kevin C

Do you mean what if the 2009 notice wasn't sent out? In my opinion, the notice or lack thereof, wouldn't make a difference IF the plan is amended before the beginning of the plan year. The contribution is required if the document says it is required. If you don't amend before the beginning of the plan year, then you have to follow the mid-year amendment rules. But, as I said before, I think there is more than one reasonable interpretation of the rules in this case. If you want to follow the mid-year amendment rules even though the amendment is adopted before the beginning of the year, that is a reasonable interpretation, too. John, Would it affect your answer if the 2009 notice had not been sent?

Are they in a prototype or volume submitter document? If so, you don't need to have a determination letter to be eligible if you have partial reliance on the document's opinion letter.

The rule K2retire is referring to applies for changes to a SH match DURING the plan year. Unfortunately, there is no official or unofficial guidance addressing your exact situation. Here is a previous discussion: http://benefitslink.com/boards/index.php?s...=40717&st=0

WesleyT, Does your document say when employer contributions must be deposited? Most plans I've seen say deposit is required by the due date for the sponsor's tax return, including extensions. If your plan has a similar provision, you have an operational error. If you are eligible to use it, the IRS's Self Correction Program (SCP) might be helpful. You should still be in the correction window for SCP correction of a significant operational failure. One nice feature of the correction process is that the corrective allocations would be treated as 2007 annual additions. Section 9 of Rev. Proc 2008-50 deals with SCP correction of significant failures.

Sorry, I was referring to the OP's situation, not my post #6. An amendment removing the SH would require either an SMM or an updated SPD, so I don't consider that adding new facts. The SPD wasn't under discussion until you brought it up. If you concede that an SMM or SPD given after the erroneous SH notice changes things, your argument is a moot point. The deadline for an SMM is 210 days after the end of the plan year in which the change is adopted. That leaves plenty of time to change things. Our electronic ping pong hasn't changed my mind. I still don't see how a SH notice by itself creates an obligation inside the plan when the plan document does not include SH provisions. Of course, that is assuming your document doesn't say the SH notice is an amendment to the document.

Wouldn't the answer to that vary depending on the exact circumstances and the judge(s) hearing the case? When the summary of material modifications or updated SPD is timely provided following a December 2008 amendment to remove the SH at 1/1/2009, doesn't that ruin your SH Notice as SPD argument?

That's an interesting way to do it. It would be a challenging task to get enough detail in the notice for it to serve as an amendment and still have it be written in a manner calculated to be understood by the average participant.

What I'm saying is that the plan document must be followed. The safe harbor notices we prepare are not an amendment to the plan. Our documents do not say the SH notice is an amendment to the plan. If the plan document does not provide for a safe harbor contribution, then you would have an operational failure if you allocate a safe harbor contribution. But, you didn't answer my question. Are you saying that a safe harbor notice, not signed by anyone, is a binding contract between the employer and employees?

I don't understand where you are going with this. Are you trying to say that the SH Notice supercedes the terms of the plan? Or, are you trying to say that the unsigned SH Notice is a contract between the employer and employees?

I recall a question very close to my question 1 addressed at an ASPA annual conference IRS Q&A session several years ago. The question dealt with a SH notice being sent, but the plan was not amended to provide the SH. The answer was that the terms of the document control. I think that has to be the answer because the SH notice is not an amendment to the plan. If you question that, look at the amendment procedure in your plan document. For my question 2, I cheated. Tom posted this a while back. http://www.irs.gov/retirement/article/0,,id=200386,00.html This is the situation with Indigo in the article. Failure to provide the notice is a failure to follow the terms of the plan. The failure is corrected by providing the notice and revising the SH notice delivery procedures so the error won't happen again. The plan document language controls. We also had informal guidance on this a few years back. Back to the OP, there isn't any official guidance on this. My opinion is that a reasonable interpretation of the regs and existing guidance allows you to remove the 2009 safe harbor as long as the amendment is adopted before the beginning of the 2009 plan year. If the 2009 notice was already sent, you have some explaining to do. But, to me that is an employee relations issue, not a plan one. Others will likely disagree. Don't you love it when there can be more than one reasonable interpretation of the rules?

1.401(k)-3(g)(1)(ii) has the rules for amending a SH match plan during the plan year to reduce the match. The OP is not talking about an amendment made during the 2009 plan year. I'm curious what the opinions would be for a couple of other scenarios: 1. The plan was amended 11/1/2008 to remove the SH. A 2009 SH notice is sent by mistake on 12/1. Are they SH for 2009 or not? 2. A safe harbor notice is not sent for 2009, but the plan contains SH provisions. Are they SH for 2009 or not?

So your document excludes everyone who is not a US citizen? Aren't there federal law provisions preventing discrimination against legal resident aliens?

No, you can't. See 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1). Even if those provisions were not in the regulations, you would still have a 411(d)(6) anti-cutback rule issue if you tried. The safe harbor match must be required by the terms of the plan and everyone has already earned the right to receive it for 2008.

The technical explanation of the bill is in "Benefits in the News" today. http://www.jct.gov/x-85-08.pdf Here is the part about the eligible rollover status of amounts that would have been RMD's for 2009. Apparently, even though the amount that would have been the 2009 RMD is not an eligible rollover distribution, it CAN be rolled over.

If they don't fund the 2008 Safe Harbor contribution, your Safe Harbor is not "fine". See 1.401(k)-3(h)(1). I haven't had any experience with the IRS along those lines. But, I have with the DOL. I was contacted a few years back by DOL about a client we fired several years before that. The current Director and Board of the company told DOL they had no plan records and their plan was gone. The Director when we fired them filed a DOL complaint because they wouldn't pay her benefit after her employment terminated. The DOL made sure everyone got paid what they were entitled to receive, then fined both the current and former Directors.

A related question is what happens to the plan if the safe harbor contribution is not made timely? In addition to losing the SH for 2008, I would think failing to deposit a contribution required by the terms of the plan would be an operational failure that would jeopardize the qualified status of the plan. If the owners are planning on rolling their distributions to an IRA, they will have some incentive to keep the plan qualified. You need an ERISA attorney.

Are you referring to HR 7327? If so, it doesn't look like it eliminates all RMD's for 2009. From Section 201 of the bill: I'm reading that as saying that if someone otherwise subject to an RMD for 2009 takes a distribution in 2009 and tries to roll it over, they can not roll over the amount that would otherwise have been an RMD. That would effectively make the RMD still apply if the person received a distribution during 2009.

I'll update my prior post. The IRS late amender penalty was $6,500 for the 1 person plan with about $600K in assets. Fortunately, the owner was filing his 5500-EZ's so we did not have to deal with that issue. The IRS has other ways of finding plans for audit. They look at W-2's with deferrals listed. That's how they find non-ERISA 403(b)'s and governmental plans to audit. If the employer gets audited and there is a deduction for a retirement plan contribution, they may want information on it, too. I doubt the IRS really wants to waste their resources processing 27 years worth of filings. But, I don't know how you would get to someone at the IRS who could give you an answer you could count on. You might try contacting an IRS agent who has audited one of your other plans. The agent (or his/her manager) may be able to point you towards someone at the IRS who can help you.

I'd like more information on the forfeitures. When did the people who forfeited the amounts terminate employment? When were their distributions paid? What are the plan provisions on 100% vesting at plan termination? Was there a partial plan termination prior to termination of the plan?

I think there is more than a slight difference there. Eligibility requirements are not safe harbor provisions. The IRS may want to apply the SH plan year restrictions on amendments to non SH provisions, but that isn't what the regs say. We have announcement 2007-59 saying that amending to add Roth or hardship provisions mid-year is ok. They appear reluctant to say what other non SH changes they think are ok. The question here is can you amend the SH match during the year to add a discretionary match piece? I think it is pretty clear the regs say you can't.

I read that as saying that only those who were defaulted into the QDIA or who may have their investments defaulted into the QDIA must receive the notice. That would be everyone who has not made an investment election. It may be easier to give the notice to everyone instead of trying to determine who is required to receive it. If a terminated participant was defaulted into the QDIA, I think they have to get the annual notice. I don't see anything that provides for different treatment based on active or terminated status.

Tom, The TH exemption using a discretionary match was Q 14 in the 2006 IRS Q&A's from the ASPPA annual conference. The example was a 3% SH that also allowed the discretionary match. The speaker said that allocating a discretionary match would blow the TH exemption. There were some errors in the handout for that question. If you download those Q&A's from the ASPPA, the listed answer is maybe. Has it been addressed since then? Blinky, I think the plan year requirements in 1.401(m)-3(f) and 1.401(k)-3(e) will prevent you from doing the amendment for this year. You are attempting to amend during the year to make the discretionary match part of the SH. You are not allowed to change the SH provisions during the year. I would make the change effective 1/1/09.

We had the same issue come up during a recent IRS audit. The agent cited Notice 89-23 for the all or nothing rule. We pointed out that the plan document contains a provison with a correction procedure for inclusion of ineligible employees. The correction is to distribute the deferrals that should not have been made. At this point, they have not decided whether they will let us use the plan's correction method. The agent supervising the audit is out until January, so it will likely be February before we hear back from them.

I don't see the article as saying the SH notice really makes much difference in these two situations. In the first example, Violet did not receive the SH notice AND she is improperly denied the opportunity to make salary deferrals. The correction for Violet is the same as the correction under Rev. Proc. 2008-50 for someone who is improperly excluded from a plan that uses the SH match. It looks like the improper exclusion is the reason for the corrective contribution, not the missed SH notice. In the second example, Indigo was already deferring, received prior SH notices and was told the SH match continued to apply. The only corrective action is to give her the missed notice and revise the procedure for providing the notice. If the new participant received enrollment forms and a copy of the SPD when they became eligible, but not the SH Notice, I hope it would be the administrative correction like for Indigo. It sure would have been nice to have more examples in the article.

Unfortunately you are not alone. I'm in the middle of a Form 5310 filing that may be with the same agent. So far, she has sent me two requests asking for a total of five amendments that were included in the original filing. They adopted a good faith EGTRRA amendment in Dec. 2002. I had them adopt another good faith EGTRRA amendment when the plan was restated for GUST in early 2003. Both EGTRRA amendments were included in the filing. Her first letter said the EGTRRA amendment was late because it was adopted in 2003. I sent her another copy of the one adopted in 2002 and explained that it was adopted twice. Her second letter accused me of backdating the 2002 EGTRRA amendment. I had to cool off for a couple of days before I could respond. I'm still waiting for her response to my last letter.