Employer bankruptcy and safe harbor nonelective requirements

[Belgarath]

A business has a safe harbor nonelective 401(k). Does NOT use the "wait and see" approach. Has not yet contributed the 3% for 2003, and has already provided the safe harbor notice for 2004. Business is going down the toilet.

First advice is for him to contact his legal counsel. But for my own edification, not being versed in bankruptcy issues, there are a few issues I'd like to explore briefly.

First, for the 2003 nonelective, this is still required, but I assume the plan has to "stand in line" as a bankruptcy creditor? Are plans usually given priority in such a a situation?

For 2004 - since there is no money, client wants to relieve the 3% nonelective obligation, insofar as that is possible. Only way I can see to avoid this is to terminate the plan - which should allow 3% nonelective obligation only on the compensation earned up to the termination date. I think. IRS Notice 2000-3 is helpful if the safe harbor is a match, but on the nonelective, I can't find much to enlighten me in this situation. I don't find any authority that simply allows him to "revoke" the 3% nonelective by simply notifying the employees that that is what he is going to do.

Any thoughts? Thanks.

[Dalai Pookah]

We are facing the same situation, so let me breathe life into this request? Any thoughts on how to apporach? We can contact the trustee in bankruptcy, but will that person know how to handle?

After 17 years somebody must have a thought.

[QDROphile]

The trustee in bankrupcty is responsible for all claims against the employer and either will know what to do or will have to figure it out.  Some fiduciary is responsible for asserting the plan’s claim for contributions.