Front-loading 3% Safe Harbor Contribution

[chris]

Employer has asked if it can front-load the 3% safe harbor contribution. Without looking at the plan doc a number of issues come to mind. 1. 3% of what number? 2. what if participant terminates early in the year or their comp. for whatever reason is less than last year's comp. ? E/ee will want all $$ earmarked for him/her 3. if total comp. is less than last year's e/er can't get the money back 4. plan doc. issues Anyone looked at this previously or have other issues? Thanks.

[Tom Poje]

I don't believe you can do that, the reasons you cite sound pretty good.

you could certainly do things on a payroll basis if the safe harbor was a match, but there is nothing indicating you could do this for a SHNEC. the fact that allocating a match on a payroll basis would seem to be further evidence that pre funding would be a no-no.

[chris]

I just took a look at Sal Tripodi's ERISA Outline Book at p. 11.450. He points out at 7.a. that an employer may make the safe harbor nonelective contribution during the plan year so long as the aggregate contributions allocated to an eligible employee for the enitre plan year equal the appropriate amount under the safe harbor contribution formula. As an example he states that an employer may want to deposit the safe harbor contribution on a monthly basis.

Assuming you used the true monthly compensation numbers and did not base it on a projected comp. number, then all of my issues listed above would seem to go away.....assuming there is no prohibition in the plan document. Any reason to disagree with Sal....??? Thanks for the response.

[chris]

Actually, Sec. VII. a. of NOtice 98-52 states that contributions can be made "from time to time during the plan year"...

[Tom Poje]

then it certainly is possible, though that would not be front loading, that sounds like a payroll by payroll basis. that avoids the issue of putting in too much for someone whose comp may be less than the previous year.

[Lori Friedman]

It seems as if the employer is being very considerate of its employees. Most plan sponsosrs want to hang onto their assets for as long as possible, making contributions on or near the deadline. This employer, however, prefers to transfer money to the trust much earlier than required, probably so that the plan participants can earn more on their account balances. I wish more employers would have similar appreciation of their personnel.

[Tom Poje]

well, yes and no.

if the employer is making booka-bucks, then he will max out early in the year. therefore his money will be invested over a longer period of time instead of after the end of the year. unless he is invested in poorly performing investments it is a big advantage to him.

[chris]

I apologize for the misleading topic name....