Safe Harbor Plan and Short Plan Year

[Guest AndyL]

401(k) Profit Sharing Plan - PYE 12/31 - has been satisfying the ADP safe harbor (match) since 1999. The plan sponsor decides that they want to have a short plan year (let's say 1/1/03-6/30/03), so that the plan year and fiscal year coincide.

On 6/30/03 the plan sponsor signs the GUST resatement which also includes the short plan year 1/1/03 to 6/30/03.

NOTE: the plan does not permit match other than the SH match

What should the TPA firm do at this point to "unravel" what's happened?

Clearly, notices 98-52 and 2000-3 do not permit this plan to be safe harbor during the short plan year. The ADP test fals miserably.

Any comments are appreciated.

[Tom Poje]

proposed regs

1.401(k)(3)(e)(3) will allow for a change in plan year, to one that is less than 12 months if the plan was safe harbor the year preceding and the year following.

granted those are not 'official' yet, but at least it is a possible starting point for arguing the possibility...

[Archimage]

I think you are stuck with the way the current regs are written. Granted the proposed regs do address this but those will not be effective until 2006 if they are finalized next year.

[Tom Poje]

tough call. ASPA has requested that administrators be given an option to implement the proposed regs at the earliest possible date.

mainly because certain provision provide guidance where none existed.

certainly the case you have falls into that category.

hopefully IRS will respond positively to this request.

But then will the IRS say it is all or nothing, e.g. you have to calculate GAP earnings, etc.