Can employer amend 401(k) plan now (midyear) to provide for 3% safe harbor contribution?

[Guest tws]

Employer wants to amend 401k plan now to provide for 3% safe harbor contribution. Amendment to be effective 1/1/03. Can this be done, or is it too late to provide for a 3% safe harbor contribution for 2003?

[Blinky the 3-eyed Fish]

It's not too late to provide the contribution, but it is too late to have it serve as the means to avoid ADP testing.

[g8r]

It's too late if you didn't give out a conditional notice prior to the beginning of the 2003 plan year. If you gave out a notice prior to the 2003 plan year telling participants that the employer "might" make the 3% nonelective safe harbor contribution, then you have until 30 days before the end of the 2003 plan year to amend the plan to provide for the contribution and you must give out another notice to participants stating that the contribution will made.

[Brian Gallagher]

Geez g8r! Burning the midnight oil? 12:02 AM Saturday. Wow!

[rcline46]

Does the document have a QNEC in it? A QNEC to NCEs only to pass ADP might be less than 3%! Or a 3% QNEC passes and covers TH!

In fact, we have found a regular QNEC is more efficient that a Safe Harbor, especially in a New Comparability plan.

[Blinky the 3-eyed Fish]

I am not sure how the QNEC could be more efficient in a new comparability plan if the (a)(4) testing must pass with and without it. I am confused why a QNEC helps in a new comparability plan.

[rcline46]

A QNEC is still an employer contribution, still gets used for TH under the rules, and still is used in a4 testing, and since it goes only to NCEs it very efficient. It has properties the SHNEC doesn't have, like EOY/1000 hr rule.

I am without resources right now - so I can't verify the "with and without" a4 testing item. Corbel/Relius testing only includes it.

[Guest Richard Scheer]

Regulation 1.401(k)-1(b)(5) says that the non-elective contributions, including QNECs must satisy 401(a)(4) and the non-elective contributions, excluding QNECs must also satisfy 401(a)(4).