Late-year amendment to add 401(k) a BRF problem?

[Guest Hilarion]

We've got a whole bunch of multi-life profit sharing plans sponsored by sole props and partnerships being amended at this time to 401(k) and safe harbor 401(k) plans effective January 1, 2003. The rank-and-file, if they want to and can defer, really only have one or two payrolls left in 2003 in which to do so. But the self-employeds have all of 2003 on which to base their deferrals. To me, this seems inherently discriminatory, and I'm wondering if these types of amendments run afoul of BRF.

[Guest Bob K]

For those plans that are not safe harbored, I would think that the ADP test would slove this problem. If the NHCEs can't or won't defer, then the HCEs are out of luck.

As for the Safe Harbor plans, how can they be added at this time?

A traditional 401(k) cannot be converted to a Safe Harbor once the Plan Year has begun. For one that is starting up for the first time there is a requirement that the first plan year be at least 90 days long.

What am I missing?

Bob

[Guest Hilarion]

The plans are straight profit sharing, not 401(k). My question is whether the amendment of an existing profit sharing plan sponsored by self-employeds to a

401(k) or safe harbor 401(k) for 2003 is or could be discriminatory, since only the self-employeds can make meaningful deferrals.

[mbozek]

why is this any different from the establishment of a 401(k) plan at the beginning of the year with low participation by the non hces at year end?. Under the 410(b) rules all employees are deemed to benefit from the plan if they are eligible to participate, regardless of whether they do. I dont think this is a BRF problem since the non hces are not subject to the ADP and the HCES will be limited to the ADP%. If no non hces contribute then the ADP for the HCEs will be 0.

[Mike Preston]

Hilarion, you are trying to blame 401(a)(4) for the inherrent determination that compensation is deemed on the last day of the year to sole props and partners. That is the nature of the tax beast and I don't think that relying on that can possibly lead to a BR&F issue.

[Guest Hilarion]

Thank you, guys.