Safe Harbor 401(k) and Part Time Employees

[MBCarey]

We have a client who wants to set up a new safe harbor plan effective 7/1/03 (no other plan in place) and I have a couple questions.

1. Should the notice have gone out 30 days prior to 7/1.

2. There is an employee who was full time in the first 6 month of the year, but went part time as of 7/1, will be paid W-2 wages of $1,000 and commission as a independent contractor going forward. Does he have to be included in the new plan?

3. Should we ask the client to wait until 1/1/2004 to make the plan effective.

[WDIK]

1. Yes.

2. That depends on the language regarding eligibility and participation in the plan document and whether or not there would be any coverage issues.

3. That is one option. Another is to choose an effective date during 2003 that would allow the notice to be given and the plan year to be at least three months long. A third option is to adopt the plan without the safe harbor provisions.

[Harwood]

They should be sure of their ability to pay someone as both an employee and an independent contractor. Usually the two are legally incompatible.