Terminating safe harbor plan

[Guest Ashley]

If a safe harbor plan with a basic match is terminating, is the plan sponsor required to give 30 days notice (i.e., delay the desired plan termination date to allow a notice period)? Notice 2000-3 does not specifically address plan terminations, but does seem to require 30 days notice. Either way, the plan will have to run the ADP test, but a "cost conservative" client would prefer not to delay termination to provide notice. Any thoughts?

[ErisaGeek]

You are correct in stating that Notice 2000-3 does not provide steps to terminate a safe harbor 401(k) plan.

There are two answers to this question depending on what approach your client wishes to take.

Conservative Approach: You would do a 30 day notice to inform that the safe harbor match is going to be discontinued. After the notice requirements are met you would terminate the plan. However the cost concious client is going to get upset about this method. This approach would be the best precaution a client could take.

Aggressive Approach: You simply terminate the plan and discontinue the safe harbor 401(k) match. One could argue that the safe harbor 401(k) is not a pension plan and hence not subject to the 204(h) requirements.

In either approach the client would still have to run the ADP/ACP test for that plan year.

You can also read about these two approaches in Sal Tripodi's ERISA Outline Book-Edition 2003.