SUSPEND SAFE HARBOR MATCH

[Guest ROB VIDOVICH]

A COMPANY HAS A SAFE HARBOR 401K PLAN WITH THE SAFE HARBOR MATCHING PROVISION. DUE TO ECONOMIC CONDITIONS THE EMPLOYER WANTS TO SUSPEND THE MATCH.. ALSO, THEY ARE TALKING ABOUT MAYBE SUSPENDING THE DEFERRAL..

1. Can the employer suspend both contribution sources for a Safe Harbor Plan or could they just suspend the safe harbor match????

2. If so, what documents will the employer need to provide the participants and would they need a corporate resolution or just a memorandum to participants????

3. If they are allowed to suspend both contributions sources could they at some future date allow for deferrals and keep the safe harbor match suspended???

[four01kman]

First, it is important to keep in mind that a safe harbor plan allows the Highly Compensated Employees to contribute as great a percentage of the pay as they want, within the dollar guidelines.

Having said that, it seems the employer could amend the plan to eliminate the safe harbor contribution. The non-HCE deferrals could continue to be made without any change. The HCE deferrals either could be suspended, or limited as required by the ADP, or limited by a flat % deferral that is suspected to meet the ADP.

An appropriate communication would have to be made to all eligible participants letting them know about the change.

[Guest Richard Scheer]

The employer can stop the safe harbor match, but they must give at least 30 days notice to the participants.

Also, since the safe harbor match will not be made for the full plan year, the plan no longer gets a free ride on the ADP test.

[chris]

See IRS Notice 2000-3, Q&A-6 as to timing, etc..... Also, you will need a corporate resolution regarding the amendment to the plan as well as an amendment to the plan signed off on by the employer/plan sponsor and the trustees

[MWeddell]

Also, to suspend the safe harbor match, you needed to have reserved the right to do so in the safe harbor notice that was distributed to participants 30-60 days before the plan year began. Again, IRS Notice 2000-3 should answer your questions in this regard.