Safe harbor amendment deadline

[Guest jim williams]

If an existing calendar year 401(k) plan wants to establish a safe harbor plan effective 1/1/05 using the safe harbor matching formula and timely provides the employee notices by 12/1/04 and operationally applies the safe harbor matching formula effective for the first payroll in 2005, when is the deadline for restating the plan document? Would it still be prior to the beginning of the 2005 plan year?

[rcline46]

According to the IRS, the plan must be amended no later than 1/1/05, otherwise you are not operating in accordance with the plan terms.

Of course you could amend later and submit under VCR for a document correction.

[Tom Poje]

yes, in regards to the match.

the only time you could amend 'after the fact' is with the contingent safe harbor nonelective.

1.401(k)-(3)(e) "must be adopted before the first day of the plan year"

in other words, you are a bit late for 2005.

(Reed beat me to the punch- as he indicated it might be possible to go through the self correction program but there are no guidelines. The IRS is trying very hard to prevent people from treating the notice as an amendment.)

[rcline46]

I have been thinking, which is always bad!

The IRS under the new LRMS and regs says the plan must be amended, and a SH plan cannot have the 'normal' testing language in it. That means a radical difference in the documents.

So what if??? There are 4 document types - Std, Match SH, 3% SH, and Maybe 3% SH which we conveniently call A, B, C, and D.

Should a client want a SH plan we create all 4 documents, IE 4 plans, 1 trust.

Each year for the SH Notice, the notice states the usual, PLUS "and for the upcoming year the plan contributions will be made under document X".

Since the IRS has stated that you should be able to do in 1 plan what you can do in multiple plans, now let us bring the 4 plans together into 1 plan where the appropriate Articles are set forth. Now the notice can say "and for the upcoming year the plan will NOT use Articles q,r,s, etc".

And now boys and girls, we are back to what we have today, but more complicated!

[Tom Poje]

actually, the better question what is the corrective action in this situation

notice given but plan not amended.

since the IRS has sometimes indicated or implied the SPD must be followed if it offers better provision then the logical conclusion would be the safe harbor match must be made since participants were told there was going to be one via the notice.

However, the document contains no safe harbor language. It would not surprise me if the plan would have to provide the safe harbor match AND still perform ADP/ACP testing as a result, sort of a penalty for not doing things correctly. That of course is an opinion only.

but I base that on other such examples such as:

if plan had simply been a profit sharing plan (not 401k) and they gave the notice, then started taking out deferrals without updating the document, that would have been a real nasty no no. you simply can't do that. you can tell people yes we will have a 401k, but you cant take out the deferrals until the document is actually in place.

I agree Reed, thinking is a dangerous thing. It gets me in trouble all the time.

dang back in 1954...or was that 1986..........?????????

[WDIK]

Should a client want a SH plan we create all 4 documents, IE 4 plans, 1 trust.

My neurons seem to be working on low voltage today, so please forgive my lack of vision. I am trying to picture four plans (under a single trust) that cover the same employees but spell out different contribution formulas and allocations. Wouldn't then the eligible employees be entitled to the benefits under all four?

How does stating in the notice which document would apply for any plan year negate the benefits adopted under three of the four plans? Wouldn't this have to be done by plan amendment rather than in a notice? As Tom points out, "The IRS is trying very hard to prevent people from treating the notice as an amendment."

Please help me see what I am missing in your analysis.