Safe-Harbor 401(k) and mid-year amendment

[Guest aus10grl]

I've got a client with a safe-harbor 401(k). Notice was given timely for 2004, match formula is 100% of 6%. Document calls for match to be calculated per pay period.

Now the client wants to amend the plan mid-year to change the match to be calculated annually, which means a true-up at the end of the year. It appears to me that mathematically there is no way that this amendment could cause a cutback of any accrued benefits, and some people will receive more match than they otherwise would have if calculated per pay period.

My question is, if the safe-harbor notice said that match was determined on a per pay period basis, am I in trouble if I amend the plan? Have I for some reason gone out of safe harbor status? Clearly I can amend for 2005, but I am concerned about the current plan year.

[Tom Poje]

I would think what you would like to do would not be possible.

what you want to do is change the formula, and my understanding is that the notice provided at the begining of the year indicates a formula that will be provided for the entire year.

notice 2000- 3 does indicate the formula could be reduced or eliminated, provided 15 days notice is given and that the ADP and ACP test will be performed using the current year testing. I suppose in a round about way you could 'stop' the match, and then provide an additional match after plan year end and perform testing, but that sounds like a lot of extra work, especially if the plan will be safe harbor next year. There is nothing in the regs or notices that indicate a formula could be otherwise changed, and i have never seen an example as such from anyone out there in the pension world arguing this can be done.

I don't think the argument that changing the formula to include a true up could result in a greater match is valid. (While true there are other factors involved)

Using the same argument an individual could argue if he had known he would have ended up with a greater match he would have deferred less at the begining of the year and moe at the end of the year. the whole idea of the notice is so individuals can make an informed decision at the start, and now the desire is to change the rules in the middle of the year. In addition, how would you handle the issue of gains? Suppose the stock market takes off. the match amount someone gets now would have the advantage of the earnings, whereas a match at the end of the year wouldn't.