Safe Harbor Notice (Exceptions to Timing Requirement)

[Guest CRA]

I have an employer who has taken his time in reviewing his document and he now, on December 19th, wishes to adopt the safe harbor provision for 2003. Other than the 1999 Transition Relief for Timing Requirement for providing the Fail Safe Notice, is there any other exception for providing the notice < 30 days prior to the beginning of the plan year? The existing plan already has a 401(k) provision in place.

[R. Butler]

The IRS Notices don't exactly say 30 days, they say reasonable time. They go on to say that Safe Harbor Notices will be deemed reasonable if they are provided at least 30 days, but not more than 90 days before the start of the Plan Year.

The Plan Sponsor needs to decide whether a 12/19/02 Notice reasonable given all the facts & circumstances.

Does this a Plan that currently has a 401(k) provision? If not you can make the safe harbor effective 2/1.

[Fred Payne]

I'm curious about your statement of an effective date of 2/1. My understanding is that if the Plan does not already have a CODA, the Sponsor can give the Notice as late as 10/1 and have the effective date of the Plan 1/1. Thus a participant can make deferrals in the 4th quarter based on full year comp.

[R. Butler]

If it is a profit sharing plan with no 401(k) provisions, a 401(k) safe harbor provision could be added new at any time during 2003. They could give notice now and make the safe harbor provisions effective 2/1.

[kocak]

Also check your document language. I was surprised to find the document we use had the 30 to 90 day timing written in the document, even though I had often operated under the "reasonableness" time frame in a new 401(k) plan.

[Guest Barry Max Levy]

The 30-90 day rule holds only when 1) there is an existing 401(k) being amended to Safe K. Amending a traditional 401(k) plan to a Safe K plan can only occur on the first day of the plan year. 2) There is no 30 day requirement for a new plan that is Safe K (and not a successor plan) or amending a Profit Sharing Plan (with no K features) to add Safe K. Note: For mid-year amendments, the Safe K plan must be at least 3 months long.

IRS Notice 98-52 V.C.2b

"2. Timing Requirement

b. Deemed Satisfaction of Timing Requirement

The timing requirement of this section V.C.2 is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible (and no later than the date the employee becomes eligible). Thus, for example, the preceding sentence would apply in the case of any employee eligible for the first plan year under a newly established section 401(k) plan, or would apply in the case of the first plan year in which an employee becomes eligible under an existing section 401(k) plan."

[2muchstress]

Are they wanting to use the sh match or the shnec? If they want to use the shnec, then under notice 2000-3, they just need to inform their employees before the beginning of the year that the plan may be amended to a safe harbor plan during the year.

This gives them until November 30 of next year to decide if they want to amend the plan.

Keep in mind that they must use current year testing method in order to accomplish this.

[Fred Payne]

2muchstress is referring to the "Maybe Notice." I thought the Maybe Notice had to be given according to the time lines as a non-maybe notice.

And once they make the decision to amend by November 30, they must give a notice then of their decision then.

[2muchstress]

My reading of 2000-3 indicates that the "maybe notice" must only be given prior to the beginning of the plan year. I would interpret this to mean anytime before December 31.

The second notice must be given 30 days prior to the end of the plan year, but the first notice (maybe notice) must only be given before the beginning of the plan year.

[KJohnson]

2m--I am not sure I agree, but I do agree that the language is a bit ambiguous. By its terms, the provisions of 2000-3 only change the "content' requirement in Section V.C.1. of 98-52 and not the timing requirement in V.C.2.

2000-3 provides in relevant part.

For purposes of the preceding sentence, in applying the content requirement of section V.C.1 of Notice 98-52:

(1) Instead of stating the amount of the safe harbor nonelective contribution to be made under the plan, the notice given to eligible employees before the beginning of the plan year must provide that (a) the plan may be amended during the plan year to provide that the employer will make a safe harbor nonelective contribution of at least 3 percent to the plan for the plan year, and (B) if the plan is so amended, a supplemental notice will be given to eligible employees 30 days prior to the last day of the plan year informing them of such an amendment, and

(2) A supplemental notice must be provided to all eligible employees no later than 30 days prior to the last day of the plan year stating that a 3 percent safe harbor nonelective contribution will be made for the plan year. For administrative convenience, the supplemental notice may be provided separately or as part of the safe harbor notice for the following plan year.

Then the example given indicates that the "maybe" notice still must be given within the time described in V.C.2. of 98-52

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). ...

[KJohnson]

Also Kocack I recall that the LRM's had the 30/90 provisions in them. That is why you may see those provisions in prototype plans.

[2muchstress]

Okay, so I agree now that December 31 is not okay for a "maybe notice".

However, 98-52 only indicates that a reasonable notice must be given. It later says that 30 - 90 days is deemed to satisfy the reasonable issue.

So would anyone argue that it is still possible to give the "maybe notice" after December 1?