Notice requirements when adding safe harbor 401(k) provisions to PSP

[chris]

Employer has profit sharing plan with no 401(k) provisions. Employer wants to add 401(k) provisions and meet the safe harbor by contributing 3% nonelective contribution. Employer wants that to be effective April 1, 2002. Given that there are currently no 401(k) provisions in the plan, can't the safe harbor notice be given insode the 30 day period, e.g., March 15?

[Tom Poje]

yes, you can do that.

make sure the effective date of the 401k plan is April 1.

Since you are giving less than 30 days notice, the only special requirement is that people have 30 days to make a decision on whether to defer - in other words Someone could decide as late as April 15.

[Lynn Campbell]

I have a similar situation where the Employer wants to put safe harbor 401k in an existing Profit Sharing Plan - and do it this calendar year. If I give note in mid November and make the 401k contributions effective 12/1/2002 (Plan Year ending July 31, 2003) - what is the 402(g) limit for 2002? Is it still $11,500? Could an employee conceivably defer $11,500 in December?

[Tom Poje]

Lynn:

I take it there is no 401(k) feature at the present time.

If so, then it sounds like you will be ok.

Plan year will be at least 3 months, you are going to give the safe harbor notice timely (e.g. effective date for the 401k feature of a new plan)

the 402(g) limit is a calendar limit, not plan year.

so technically the individual could defer 11,000 in December and 12000 in January 2003(but then could not defer again until 2004)

or put another way, the government looks at the w-2 statements to see how much an individual has deferred for a given calendar year.