Anagoge

Kevin, thanks for your comments on this issue. I'm glad to hear this flexibility is available for employers that want to be more generous.

Would a QACA match of 100% of the first 6% be classified as safe harbor to avoid ADP/ACP testing on an automatic enrollment/increase plan. I know safe harbor formulas can't match on anything over 6%, but I generally only see QACA matches quoted as one of these 3 options: Match 100% of first 1% and 50% of next 5% Match 100% of first 3.5% 3% non-elective for everyone (not a match) Some sources I've found say 3.5% is the max possible QACA match, which seems like a fairly low limit for some employers that want to do more.

Thanks, everyone. I'll double check the plan document allows the QACA SH match to offset the 3% TH failure contribution, but otherwise, the plan is probably OK as-is.

This is a QACA safe harbor plan (auto-enroll at 6%, 2 year vesting, immediate eligibility for everything, most of the owners max out the deferral/match). It was designed to be safe harbor since the plan knew it would be top heavy with the first non-key employee, due to the original employees all being owners. It was exempt from top heavy testing in some past years, due to no profit sharing that year (just the basic QACA SH match). I did some more reading and it looks like the TH failure required 3% employer contribution requirement for non-keys includes any 3.0%+ SH QACA match the employer is likely to put in for any new non-key employees, so this might not be a big issue. Am I right on that? The owners are OK putting in 3% for non-keys, since that is below the max QACA SH match of 3.5% anyway. But they didn't want to put in 3.5%+3% (plus optional profit sharing) for employees when owners can only get 3.5% (plus optional profit sharing), but it looks like that isn't the case. Hopefully I'm right and this isn't nearly as big a deal as I first thought...

Consider a safe harbor 401k plan with a few owner/key employees in the plan (nobody else). If the company adds a new non-key employee to the plan, won't the plan immediately become top-heavy, since the owners all have several years of assets in the plan and the non-keys have basically nothing at that point? Are there any workarounds for that problem, other than these I've found: Make sure the 401k only has safe harbor employer contributions (no more profit sharing, etc.), to qualify for the safe harbor top heavy testing exemption. The downside here is no profit sharing anymore, which hurts everyone. Provide an extra contribution for the new employee only, to fix the top heavy failure. The downside is that the employee kind of gets "more benefits" per year than the owners, which the owners may not like.

Bird - I am not the administrator of the plan or an owner or employee, I am only an advisor to the plan. Note that this an emergency sale situation and many of the details are not finalized yet, since the draft contract is just being written up. It was decided last night that the transaction will be done via a stock sale, though.

The employees will continue working and getting paid Jan - Feb, but they are aware that they can't get a new 401(k) running by Jan 1 of 2015, so they are shooting for a new plan up on or before March 1. I agree this isn't a formal merger of the plans, but more likely a dual termination and transfer of accounts into the new plan around March 1. The LLCs might be classified as a formal merger (I don't know the exact business details), but the plan is probably not classified as a merger. Anything special they need to do to be in compliance Safe Harbor wise? They have not sent any notices out, due to the emergency situation. I assume you let employees know as soon as possible. I'm also curious if since there is common minority and the majority ownership in old and new LLCs that the DOL might classify the new/old LLCs as being the "same company" which I believe would disallow distributions, and require everyone to roll over to the new plan. I think the participants would be OK with that, though.

Consider 2 small LLC employers. They both have common ownership, but the majority owners are retiring due to emergency on Dec 31, and a younger minority owner is starting a new LLC that will take over both companies on Jan 1. The previous 2 LLCs/companies will no longer exist on Jan 1. Both original companies have safe harbor 401(k) plans in place. No participant notices have been sent yet and the plan year ends on Dec 31. Can they terminate both 401(k) plans on Dec 31 this year, finalize 2014 testing and SH matching, and then give the employees the ability to roll into the new plan once it is up and operational around March 1? Assume the new 401(k) will also be a safe harbor plan. Any gotchas when doing this? Any better solutions? I realize the timing here is bad, but I I can't control that, due to the emergency situation with the owners and the fact that the termination of the companies is already in motion.

I think the company is in a difficult situation, since I believe many employees are interested in maintaining the stock in the plan (no complaints about it being there and no requests to sell) and even purchasing new stock, but the management may not be as excited about the fiduciary responsibility, added complexity, and risk involved (should the company's fortunes decline). They could offer to buy the stock back at a fair price, but I'm not sure how well that would go over. Ideally, they would be able to extract the stock from the plan into IRAs so the employees could optionally keep it that wanted it, but remove the fiduciary responsibility and risk of having it in the plan. I don't think that is possible though, without IRS penalties, due to there being no distributable event triggering the distribution. They are not currently allowing new purchases of stock due to the feeling of risk and stock declines they experienced in the 2007 market crash. Currently, terminated employees are cashed out of their stock at the current stock valuation and the stock is not distributed in-kind. I will float the buy out idea, but I'm not convinved they will bite.

The plan is participant directed. All investment options are participant chosen, though stock purchases can only happen when shares are available, either when participants currently holding stock are offering it for trade for cash at the current valuation price, or when the board approves an offering of stock to the plan for participants to purchase. These purchases are rare and have not happened in a few years, with the exception of sales to roll out accounts for terminated participants. The stock is valued regularly by an independent third party. The employer securities were purchased by choice by each individual participant (not given by the employer as profit sharing, etc.). They have not received any requests from non-terminated participants to cash out their company stock the last few years, despite the stock being worth less than it was 5-6 years ago. Part of the reason is probably the tiny % of plan assets the stock represents. And I don't believe many/any participants have more than 10% of their individual account allocated to the stock. The plan document does not mandate investment in company stock or offering it in the plan. There is a short investment policy statement of sorts that has some guidelines for the operational procedures of the stock (maximum % it can be of any account, how/when to purchase, when to value it, etc.), but it appears to be separate from the plan document.

Imagine a standard corporate 401(k) plan (not ESOP, etc.) with illiquid private company stock as an investment in the plan (<2% of plan assets). The company now believes that including the stock in the plan may not have been a good idea, due to additional fidicuary risk, accounting complications, limited liquidity, limited company growth, etc. They don't want to move the stock to another plan, but completely remove it from the existing plan somehow. What are their options to remove the company stock, beyond terminating the plan? Can they have it valued by an independent third party (which they already do) and credit the participants with cash in the plan in exchange for buying back the stock? Or can they force the stock out some other way? I don't think they can force distribute the stock out to IRAs for each active participant, since there is no distributable event to make that legal. Do they have any reasonable options to eventually get to a plan with no company stock in it? I haven't been able to locate any white papers or DOL guidance on this topic.