use of the "maybe" notice still permitted

[Earl]

I have been hearing that there is a "problem" with using a maybe notice and then not making the safe harbor contribution.

I am hearing that you "should" amend the plan and remove the safe harbor language rather than announce 30 days before the end of the year that there will not be a contribution (and announce that maybe there will be one for next year).

Am I hearing things? What's an administrator to do?

Thanks for any comments.

[Tom Poje]

The proposed regs are exactly that - only proposed at this time. However, they do appear (at least in my humble opinion) clarify things - the way that plans were intended to be operated.

so, this is the way I understand the rules:

calendar plan is non-safe harbor, but on Dec 1, 2004 says it might go safe harbor.

By Dec 1 , 2005 if it chooses to go safe harbor, then plan is amended to include safe harbor language, and another notice is provided stating this fact as well.

If it is decided not to go safe harbor, no further action is required except the notice saying the plan is not safe harbor for 2005.

Now, can a plan toggle back and forth? It looks like that is possible. In other words, at the time the plan is amended, it is indicated that the plan will be safe harbor for the 2005 year only, though the notice could say the plan might go safe harbor in 2006, and then the process starts all over again.

I would suspect an administrator would not want to go through the process of amending the plan every year like this, but rather decide on some type of permanancy. I would also suspect the IRS would prefer that as well.

In the same way, if plan went safe harbor in 2005, the notice for 2006 might say the plan will now provide a match instead, in which case the plan would have to be amended from the nonelective language to the match language.

[Earl]

Do you think the proposed regs (which I have not read) limit the ability to go back and forth?

What I would like to do is have fiscal year plans do safe harbor every other year and have the HCEs do two years of deferrals in one plan year.

Is this going to far?

Thanks alot for your time.

[Tom Poje]

it has been awhile since I slept...er read through the proposed regs.

I know when I looked at them the first time the question that came to my mind was how you could even use a maybe notice - and then I figured its a matter of the document doesn't even contain the language.

(As an example, I think the original corebl documents you would put the safe harbor language in, but the spd contained language that the plan would provide safe harbor if a notice was given.) This does not appear to be what the IRS would want to have, hence the proposed regs to clarify things.

They put the proposed regs out so they get comments - hopefully whatever comments they got will clarify even more.

I think what you intend to do sounds like a bit much, but thats only my thought...

[Guest Pensions in Paradise]

My feeling (for what it's worth) is that amending the plan every other year would be discriminatory. You may want to take a look at Treas. Reg. §1.401(a)(4)-5(a).

[Blinky the 3-eyed Fish]

Why do you think it could possibly be discriminatory?

[Guest Pensions in Paradise]

Let's see.... amend the plan to provide for S/H in fiscal year 1 so the HCE can max out their deferrals for 2004 & 2005, then amend the plan to turn off the S/H in fiscal year 2 since the HCE already maxed out, then amend the plan to provide for S/H in fiscal year 3 so the HCE can max out again in 2006 & 2007. You tell me if that sounds like an abusive pattern of amendments.

[Blinky the 3-eyed Fish]

I missed the amending it every "other" year when I first read it. While it is a facts and circumstances test and it is not clearly abusive, since the amending of the plan is ADDING benefits to NHCE's, I am on your side and wouldn't do it without some IRS approval.

[Earl]

Thanks for your thoughts.

I wouldn't do it if it took an amendment. That's why I am wondering about the current and future status/flexibility/power of the maybe notice.

It's important (to me) that you guys are talking amend. It seems implicit that you don't feel the maybe notice has the power I want it to have, generally speaking. (Skip a SH contribution occassionally without a pattern of abuse.)

Thanks again.

[Tom Poje]

yes, I strongly feel that is how the IRS intends safe harbors to work.

(Not that I felt that way when these things first came out)

Yes, I agree, I dont think the notice is as powerful as we once thought.