Safe Harbor 401(k) Plans - Plan Document Requirements

[Guest Giovanni]

After all this time, I'm still confused about plan language necessary for safe harbor 401(k) plans. We use a lot of Corbel docs and the plan doc says it's SH. yet we just took over a client with a Datair doc and that plan says that a resolution has to be done each year to make it SH. Is either way permitted?

[Archimage]

The document language will probably say something like ...provided a notice is timely given... this is referring to the safe harbor notice that is required. If this is not given to participants, then the safe harbor language is null and void.

[Tom Poje]

you aren't the only one confused.

It would be my understanding (at least based on the proposed regs) that if the language is in there, then the plan is safe harbor. of course the proposed regs aren't in effect yet and I imagine there are a lot of documents they say things are driven by the notice.

again, this only my understanding of how things are suppose to be done.

For example, plan gives notice 12/03 it may go safe harbor in 2004.

It has until 12/04 to make that deceision, and if it does, the document is amended to contain safe harbor language. it also gives notice on 12/04 it might be safe harbor for 2005. on 12/05 plan would have to be amended to remove the language if it was decided not to go this route. Of course I am talking about the SHNEC not the SHMAC.

yes, Corbel documents say its safe harbor, and then I think the SPD said 'if the company so chooses'

again, my opinion (and quite possibly my opinion ony, but I think I actually read this stuff somewhere else) this is not what the IRS wants. it either is or isn't, which seems to make the notice an information reminder rather than something that drives the whole affair.

[Guest Giovanni]

Thank you for your responses.

The doc I was referring to is an AccuDraft doc, not Datair as I previously said.

The doc actually says that SH "will apply for any such Plan Year in which the Sponsor, by Sponsor's written resolution and issuance of a Safe Harbor Notice......". "The Sponsor's written resolution must specify the Plan Year for which the safe harbor is elected, the method by which the safe harbor is to be satisfied, and whether safe harbor contributions will be made to HCEs as well as NHCEs. The Sponsor's written resolution will be deemed to be an amendment to this Plan if made in accordance with Notice 98-52, Notice 2000-3 and any subsequent guidance issued by the IRS".

Have you ever seen a document drafted in this manner? It seems to be requiring a resolution each year, in addition to the SH notice.

[Bird]

We use Accudraft for most of our documents, and the language is as you described - you need a resolution each year to use the nonelective safe harbor, and of course you have to give the notice. That's the way it should be, IMO, to give the sponsor the flexibility to issue a maybe notice before the beginning of the year, and the "definitely" notice 30 days before the end of the year, with a resolution adopted at that time. (The flexibility being, of course, that they could issue a "definitely NOT" notice then, instead.)

We have one Corbel plan and the safe harbor election is permanent; you would have to amend the plan, presumably before the beginning of the year, to remove the safe harbor. The notice is always required.

[Tom Poje]

Again though, unless the proposed regs are modified the following is what the IRS desires. (desIReS)

This is from the preamble

The proposed regs would provide that a plan MUST provide for satisifaction of one of the specific nondiscrimination alternatives.....similarly, a plan that uses the safe harbor method must specify whether the safe harbor will be the nonelective safe harbor contribution or the matching safe harbor contribution and it is NOT permitted to provide that ADP testing will be used if the requirements for the safe harbor are not satisfied. The safe harbors are intended to provide employees with a minimum threshold in benefits in exchange for easier compliance for the plan sponsor. It would be inconsistent with this approach to providing benefits to allow an employer to deliver benefits to NHCEs and revert to testing.

......an employer could adopt a section 401(k) safe harbor plan which has a contingent non-elective contributions, provided the employer notifies employees of the contingent arrangement before the start of the year, AMENDS the plan to provide the nonelective contributions no less than 30 days before the end of the year.

.....

Based on that, I don't think the IRS likes the 'flexibility' approach, rather they are looking for something more permament