Safe harbor notice/dating

[pmacduff]

OK - my search feature doesn't seem to be working... I have a client with a calendar year 401(k) Plan. They want to amend the plan to safe harbor to avoid the ADP testing. I know it can't be effective 01/01/05 because they passed the 12/01 deadline for notice. Is it true that they must now wait until 01/01/06 or can the plan be amended now and make the safe harbor effective 03/01/2005 as an example? Thanks in advance.

[wmyer]

The plan can't be amended now to make the safe harbor effective 3/1/2005 since there's already an existing 401(k) feature in place.

The plan can still use the "maybe notice" until 12/31/2004 to be a safe harbor for 2005, if the plan uses the nonelective and otherwise satisfies the requirements (e.g. supplemental notice).

[pmacduff]

WMyer - thanks for the reply. Are you sure about that 12/31 date for the 3% SHNEC? Even with the "maybe" notice, I thought it had to be out by 12/01??

[Tom Poje]

Notice 98-52 V C 2a merely says the notice must be timely based on all facts and circumstances.

2b says you are deemed to satisfy if notice is given 30 - 90 days beforehand.

(But there is nothing to say that you could provide the notice in a shorter time frame, merely that you don't get the 'guarantee' you are ok)

so, if you give notice now, you simply fail 2b.

so, do you pass 2a? if it was a safe harbor match one could argue the ee only has 10 days (and over Christmas) to make an informed decision to defer. that doesn't sound like a reasonable amount of time.

If the contribtuion is the SHNEC, then the employee's decision to defer has little to do with anything. I suppose one could argue that the ee might not defer if he was guaranteed a 3% contribution. Though if it is a 'maybe' notice then there is no guarantee. So it might be possible to argue you could still provide notice at this late date and it is reasonable based on the fact it is a 3% SHNEC.

[wmyer]

pmacduff, If you take a look at 2000-3, you'll see that the precise wording for the timing of the maybe notice is simply "prior to the beginning of the plan year." See the text below. I think you can interpret this to be as late as 12/31.

Q-1. By what date must the sponsor of a 401(k) plan adopt the 401(k) safe harbor nonelective contribution method for a plan year?

A-1. Generally, a plan that is intended to satisfy the 401(k) safe harbor requirements for a plan year must, prior to the beginning of the plan year, contain language to that effect and must specify the 401(k) safe harbor method that will be used. (However, see section XI.B. of Notice 98-52 and Rev. Proc. 99-23, 1999-16 I.R.B. 5, for the remedial amendment period applicable to plan changes incorporating the 401(k) safe harbor provisions.)

[pmacduff]

"Cool" - this is good to know! [no pun intended (I'm in New York)]. Thanks for the info!!

[Tom Poje]

'Lady MacDuff'

Forsooth! In Florida as the dawn breaketh it tis beloweth freezing, thus it tis pretty cooleth here!

not Shakespeare

[austin3515]

So we're saying that even if it is not a maybe SHNEC, the notice can still be given today as long as we're still talking about the 3% SHNEC? The only ramification is not meeting the safe harbor notice requirement?

[wmyer]

Well, the text that I quoted from Notice 2000-3 is only referring to the Maybe Notice, so I don't know if I would go that far, austin3515. But of course you could issue a Maybe Notice followed immediately by a Supplement Notice. By the way, notice that the 401(k) proposed regulations retain the language of "prior" when referring to the Maybe Notice, rather than using the phrase "a reasonable time period prior to."

[austin3515]

It sounded like Poje was relying on 98-52 for his comments?

[Tom Poje]

yes, I was looking at 98-52.

2000-3 is really clear, if you give a 'maybe' notice, then you

must amend plan to allow for the safe harbor and give supplemental notice by 12/1 of the next year if you do indeed go safe harbor.

odd, at that point it becomes a must.

at the ASPPA conference this year the question was asked what if you missed giving a notice - of course it was for an ongoing plan, and the basic response was

(in my own words), the document says you will make the contribution. thus, the error is an operational one. solution: provide the notice and 'take our chances' (even though it is late)

this will probably not present a problem in the case of a SHNEC.

in the case of a match, no known solution, I believe making an additional QNEC for those that didn't defer was implied, but my brain gears are a bit rusty at this time of year to remember.