Cessation of Safe Harbor Profit Sharing

[mschwechter]

We have a case that uses a 3% non-elective safe harbor provision.

Company is in hard times, and laid off most of the employees in 2004.

Is there a way to eliminate the safe harbor provision for 2005, or to have the HCE's waive the safe harbor contribution since there are no R&F employees?

Can the owners waive the safe harbor allocation on their behalf for 2004, and only fund the safe harbor for the R&F?

Thanks.

[Tom Poje]

at the 2004 fall ASPPA conference the IRS indicated no amendment to eliminate a 3% safe harbor contribution is possible.

The plan could be terminated to prevent further accrual from this date on but unless the notice provided indicated it was a 'maybe' safe harbor, you can't get out of it.

And of course, if a maybe notice was provided, then the safe harbor language wouldn't have been in the plan to start with, hence no need to eliminate it.

Can the owners waive it? well the document says they are entitled to it. you would not be following the terms of the document to simply not provide it. now, what will the IRS do if they dont provide it? well, your guess is as good as mine. no maybe better. my guesses aren't usually correct.

[mbozek]

There is nothing in the tax law that requires and employer to maintain a Q plan in the face of adverse business conditions. Would a safe harbor plan contributions be required if the employer declares bankruptcy? The qualfied plan termination provisions recognize that a plan can be terminated on account of business hardship. Requiring that a SH plan be continued by an employer who has laid off employees to stay in business is a case of the tail waging th dog.