3% Non Elective Safe Harbor

[Guest kgsingletary]

New plan effective 1/1/00 - Safe Harbor 3% Non Elective Contribution Election effective 1/1/00.

The plan document is written such that the Safe Harbor election will remain in effect until an amendment is made to the plan revoking the Safe Harbor election.

The client decided 1/7/01 that they would not make the 3% Non Elective contribution for the 1/1/01 - 12/31/01 plan year. Simply sent an email to employees stating they would not make the 3% Safe Harbor contribution - rather would make 100% up to 3% Discretionary Match for the 2001 plan year. Amendment was prepared adding 100% up to 3% Discretionary Match (nothing revoking Safe Harbor Election).

Now to my question..due to the way the document was written, is the client required to make the 3% Non Elective Safe Harbor contribution? OR do they simply not make the contribution and test the plan on current year basis?

Any thoughts on this subject are greatly appreciated!

[wmyer]

It sounds to me like you don't have a Safe Harbor Plan. The participants have to be given an annual notice 30-90 days before the plan year begins stating the contribution to be made. Did your plan give such a notice prior to the beginning of the 2001 year? If not, then you have a traditional 401(k) that must pass the ADP/ACP tests.

[Tom Poje]

While true, by not giving the notice the plan is not safe harbor - however, if the plan formula requires it, you are stuck with the 3% safe harbor contribution.(e.g. fully vested, allocation to everyone) The worst of both worlds. you still have to test and you don't get the rewards of safe harbor.