Safe Harbor Notice

[Guest Giovanni]

Am I correct in the following two situations?

1) In a 2003 "wait-and-see" plan year, Employer forgot to give "wait-and-see" notice by Dec 1, 2002. Plan can be ADP tested.

2) In a 2003 "wait-and-see" plan year, Employer gave out "wait-and-see" notice by Dec 1, 2002 but forgot to give out the supplemental notice by Dec 1, 2003. Plan can be ADP tested.

[g8r]

In the first example, I'm assuming it wasn't provided within a "reasoable" period of time before individuals were first eligible to defer for that year (i.e., the 30 day rule is a safe harbor).

Under both cases, I'd say you must apply the ADP test (not may).

[jquazza]

On example 1, not providing the safe harbor notice is a disqualification issue.

On example 2, I think the sponsor should make the nonelective contribution (and thus be safe harbor.)

[Guest Pensions in Paradise]

I disagree with both of jquazza's statements, and agree with g8r.

[Tom Poje]

The way I understand it is as follows.

You have a common ordinary 401k document.

you provide notice saying 'wait and see'

one month before plan year end (or earlier)

you provide new notice saying 'we are going safe harbor' and at that point you amend plan to contain safe harbor language.

what happens if you don't provide notice? Well, the document contains no language for safe harbor, I suppose you could argue by the mere silence and no plan amendment that things are still status quo.

If the plan contains safe harbor language and you are using the wait and see approach, then the reverse is true. you must amend plan within one month of plan year end to remove safe harbor language.

If you provide no notice, then I believe you are stuck. you have to provide the safe harbor because of document language, but you also have to test since you provided no notice.

Without looking up the exact wording, I think the proposed regs really clear things up in the fact they say you can't contain language to do ADP testing if the plan is safe harbor - something like that.