safe harbor notice - non elective

[k man]

recently i read that an employer can do a notice 30 days before the first day of the plan year saying that they might make the safe harbor nonelective contribution and then 30 days before the end of the next plan year they must decide whether they will or wont be making the contribution. I call this the wait and see nonelective safe harbor. Is this accurate or are their other restrictions?

[wmyer]

Yes, it's accurate. Also, with the "might notice," if the employer decides to go safe harbor for the year, the employer needs to provide a supplemental notice 30 days before the end of the year stating that he will indeed make the non-elective contribution. He is also deemed to be a current-year ADP tester, whether or not he goes safe harbor. This can be done every year without restriction.

[Jim Chad]

The Previous posting said this could be done each year. I was under the impression the plan had to be amended each year the safe harbor contribution was made and then amended again the next year it was not made. Does anyone have any thoughts on this or on what the IRS thinks about amending every year to turn this off and back on?

[pmacduff]

Jim - You're not really "amending" the plan, but rather declaring a safe harbor contribution for the upcoming plan year before December 1st of any given year. I think that this "turns the safe harbor off and on". The plan document, I believe, states that safe harbor may be used in any given plan year and that the "Notice to Participants" will be required 30 days prior to any plan year in which safe harbor will be effective. Therefore, the Notice, and not an amendment is required each year.

[Jim Chad]

The notice I use and the SPD from Corbel both say pretty much what you said. However the adoption agreement says defintely this is or is not a safe harbor plan. Are there other prototypes that are "grey" enough that they could be filled out to cover both scenarios?

[pmacduff]

That would be nice, huh? Unfortunately, we use Corbel as well, and I'm not familiar with other prototypes, anyone else out there?

[k man]

We use PPD but and you indicate that they might make a safe harbor contribution. something else i read confused me though and that is why i posted the question. i read somewhere that they had to pass the adp/acp if they used this method. i could see if they did not make the contribution but what if they do. do they still get the free pass?

[KJohnson]

I think according to 2000-3 you must amend:

Thus, for example, a plan sponsor that maintains a calendar-year 401(k) plan using the current year ADP testing method and that wishes to have the flexibility to decide toward the end of a plan year whether or not to adopt the 401(k) safe harbor nonelective contribution method with respect to its 401(k) plan could achieve that flexibility by providing the initial notice described in section V.C. of Notice 98-52 (as modified by this Q&A-1, and Q&A-7 and Q&A-8 of this notice) before the beginning of the plan year, as provided under section V.C.2. of Notice 98-52 (as modified by Q&A-9 of this notice). If the plan sponsor then decides to adopt the 401(k) safe harbor nonelective contribution method for the plan year, the plan sponsor must, by December 1 of the plan year, (1) amend the 401(k) plan accordingly and (2) provide a supplemental notice to all eligible employees stating that a 3-percent safe harbor nonelective contribution will be made for the plan year.

Kman 2000-3 says you must otherwise satisfy the ADP and ACP test safe harbor :

Notwithstanding section XI.A. of Notice 98-52, a plan that provides that it will satisfy the current year ADP (and, if applicable, ACP) testing method for a plan year may be amended not later than 30 days before the last day of the plan year to specify that the 401(k) safe harbor nonelective contribution method will be used for the plan year (including that the safe harbor nonelective contribution will be made), provided that the plan otherwise satisfies the ADP (and, if applicable, ACP) test safe harbor for the plan year (including the notice requirement under section V.C. of Notice 98-52, as modified by this notice). For purposes of the preceding sentence, in applying the content requirement of section V.C.1 of Notice 98-52: