New 401(k) Safe Harbor Plan...too late for 2005?

[Jilliandiz]

Client wants to set up a new 401(k) SH Plan. Do I have to wait to make it effective until 1/1/06 since its October 2005 already?? Doesn't it have to be atleast 3 mths to be considered a "short plan year". Also taking into consideration it being a SH Plan, there wouldn't be enough notice given to the employees for 2005 to be the effective plan year.....right??

Are there another limitation for the first year?

[Leopurrd]

The plan would have to be effective 10/1 to start a NEW 401k plan. The notice requirement is different for the first year of a SH plan - you don't have the 30 day notice. If you search the boards you may be able to find more about the notice requirements in the first year.

Unfortunately, you'd have to ask yourself if you could implement the plan in a day....Personally I would not want to start a SH plan and then not allow the NHCE's to participate from day one - could be looked at as discriminatory because only the HCE's would know about the plan on the effective date?

If you don't start it 10/1 you would have to wait until 1/1 - you are correct in your 3 month thinking.

Sorry I can't be of more help!

Vicki

[wmyer]

I'm assuming that this is not a successor 401(k) plan. You can start the plan up by October 1, 2005 and give notice on October 1, 2005 if you want the plan year end to be 12/31/2005. Alternatively, you can start it up later with a different plan year end and still have a 2005 plan year. You could also have a traditional 401(k) the first year and amend to Safe Harbor for 2006.

[Earl]

Write it tonight and get it signed tomorrow. You probably have two weeks to get the deferral elections so no HCE should be getting any advantage. First payroll under plan is probably not until 10/15.

So you announce the plan Monday (10/03) instead of 10/1.

Don't you believe in Karma?

Earl

[Bird]

In these situations, we usually set up the plan as a non-safe harbor in the first year, but use the prior year testing safe harbor where the NHCE ADP is deemed to be 3%, so the HCEs can average 5%. Then go SH in the next year.

[Guest philc]

Does the plan year have to be the calendar year?

[Tom Poje]

only SIMPLE plans have to be calendar year. safe harbor can be non calendar.