Safe Harbor question......

[Guest jhilliard]

We have a client who currently has a Profit Sharing plan with Post tax ee contributions only. The plan runs on a calendar year basis. The sponsor wants to add the 401(k) feature with safe harbor matching. The question I have is, when changing a plan like this are there any loops holes that would allow them to circumvent the advance notice to employees? Will they have to wait until next year to benefit from the safe harbor status?

Any help would be appreciated.

[Tom Poje]

there is no safe harbor for employee contributions.

That being the case, it sounds like you would be adding the 401(k) feature.

notice 98-52 V-C-2(b) basically says in the case of a new plan you can provide notice as late as the effective date of the amendment.

This is really no different than having a new hire. If the plan had immediately eligibility, how could you give that employee 30 days notice? It would be impossible.

[Guest jhilliard]

I know the ee contribution does not have safe harbor ramifications, I need to know if the sponsor added the 401(k) AND wanted to add safe harbor match can they do it mid-year and have the benefit of not needing to test?

[Tom Poje]

I would say yes, since both itemsadded are new to the plan.

[Alf]

As clarification, the plan would only satisfy the ADP safe harbor and not the ACP safe harbor, correct?

[Tom Poje]

correct, you would still have to test at least the ee post tax contributions

I believe if you want you can include the match, but it is not required.