Too late for 401(k)?

[Brenda Wren]

Is it too late to establish a 401(k) plan (not utilizing the Safe Harbor provisions, but rather the 3% assumed deferral rate for prior year) on 12/10/02 for the 2002 plan year AND be a Safe Harbor for 2003?

Would your answer change if the establishment date was 12/1/02 (thus meeting the 30-day Notice requirement for existing CODA's)?

[Archimage]

Your plan year must be at leat 3 months long in order to qualify for the safe harbor provisions. If you are wanting to set a plan up for the plan year ending 12/31/02 then you cannot do it. You can still establish a new plan or convert a PSP into a SH 401(k) plan for the 1/1/03-12/31/03.

[Brenda Wren]

Thanks for your reply, but I don't want to be a Safe Harbor for 2002. I am confident that I can set up a NON-SAFE HARBOR 401(k) for 2002, regardless of the length of time left in the year. I just have to test or utilize the 3% assumed prior deferral rate for NHCE's.

The question is will this kill the safe harbor for 2003 because I have not satisfied the 30-day notice requirement?

[Archimage]

Yes, you can still setup a SH 401(k) for 2003.

[Brenda Wren]

Yes, I realize that. I don't think I am communicating very well. If I establish a CODA for 2002, can I still utilize the safe harbor features in 2003, OR was 12/1/02 the notice deadline for 2003....keeping in mind I did not establish the CODA until 12/10/02?

[Archimage]

I would say no because the only reason you are able to setup the SH for 2003 is because it is a new plan. Since it would not be a new 401(k) feature for the 2003 plan year you would be subject to the 30 day notice requirement.

[Brenda Wren]

I would say no, too, but I was hoping to find someone say "yes" based on the fact that the Notice could not be provided before the plan was set up. A bit aggressive and probably not do-able.

But would your answer change if the K plan was set up on 12/1/02 with the Safe Harbor 2003 Notice being given on that date also?

[Archimage]

Yes, as long as they received the notice in the prescribed amount of time.

[rcline46]

Sorry but I say YES, ABSOLUTELY, and I am doing just that.

Make sure ees have opportunity to defer this year, HCEs do 5%, match 100%, allow over 50 catchup. could get $22000 to HCE!

Then SH match for 2003. Since this is a new plan, you must give ees at least 30 days from notice to modify 2003 deferral elections even if they don't defer in 2002.

I don't see anything wrong here at all. You are using the correct rules for a plan starting in 2003 established today. And I find nothing to prevent actually starting PSP this year, nor the CODA add on.

[Archimage]

You cannot start a SH CODA for 2002 no matter what. The plan year has to be at least 3 months long. You also cannot start a CODA for 2002 and turnaround and do a SH for 2003. IRS Notice 98-52 says that a notice must be given 30 days before the first day of the plan year. This would be the case for an existing plan that would be created in 2002.

[BFree]

I thought the Notice said you were "deemed" to satisfy the notice requirements if you gave it out 30 days before the plan year started. That may not preclude a shorter time period.

I think the original question was something along the lines of: We can't have 30 days, there is no at December 2. Can we have less than 30, even if it is the 2nd year of the plan, if the first year of the plan begins post-Dec 2?

[Belgarath]

I agree with whoever first said it in this thread that you cannot have 2003 as a safe harbor, if you already have your initial plan as a 401(k) in 2002. You would need your Notice at least 30 days prior to the beginning of the 2003 plan year, and it's too late.

If your existing plan is NOT a 401(k), then there are different rules under Q&A-11 of IRS Notice 2000-3, and you could establish a safe harbor during 2003.

[rcline46]

If you establish a 2003 plan today, you cannot possibly make it a SH plan if you slavishly adhere to the 30 day rule. That makes it absurd.

However, the rules DO allow you to establish a plan as long as the participants have at least 30 days to make or change their elections. That is the part of the rules we live by, since this IS a new plan.

[kocak]

Don't the rules say a SH notice must be provided within a reasonable time before the beginning of the plan year. The IRS has deemed this to be at least 30 days. But couldn't someone make an argument that the 30 days is not reasonable, in special circumstances?

Note - we use the Corbel document, and the thirty day language is actually written in the document. This concerns me because it soesn't seem as flexible as the law, especially when putting in a new plan.

You could just do PS in 2002 and then add the 401(k) SH feature 1/1/03. As a new feature you wouldn't need to meet the 30 days.

kocak

[Fred Payne]

I spoke with an ERISA attorney specifically on this issue. Here's what he said could be done.

For a Plan year ending 12/31, a CODA could be established in November for 2002 and assume a prior year ADP and ACP of 3%. Give a SH Notice on 12/1 and convert to the plan to SH for 2003.

If a CODA is established in December for 2002, you cannot convert it to SH until 2004 because you failed to meet the 30-day Notice requirement. No gray area in his opinion.

Here in December, a Sponsor either can set up a new SH for 2003 with no CODA in 2002 or a traditional CODA for 2002 and 2003 and go SH ion 2004.

[Archimage]

That is the point I was trying to make.