New Safe Harbor today, effective 1/1/05?

[Guest LTurner]

I haven't run into this before and after researching I am abit confused. For a new 401k-PSP, one could adopt a plan today and make it effective 1-1-05. For a new safe harbor, the language I am seeing says "first plan year must be at least three months". I presuming the plan year begins on the effective date, so one could start a new 401k (s/h non-elect) today for 2005 with the effective date 1-1-05?

[Tom Poje]

cash or deferral arrangement is made effective no later than 3 months prior to end of year.(unless it was a brand new company that put a plan in immediately).

well ok, that is what the new regs say. I did not dig back into 98-52 and whatever, to check on the wording, but the issue is that people need to defer for 3 months, not just length of plan year.

you can't defer on checks from months ago.

[Guest jvanheyde]

It also is my understanding that you generally need at least 3 months of deferrals for a new safe harbor 401k) plan or when you convert say a PSP into a safe harbor 401(k) PSP. Thus, you generally would need to set up a new 401(k) or convert an existing PSP into a safe harbor 401(k) PSP by 10/1 for a calendar year plan.

When we have not been able to do that by 10/1, we then focus on using the assumed 3% deferral rate for NHCEs in the first year and get the HCEs a 5% deferral in year one. We do this for new 401(k) plans or PSP conversions between 10/1 and 12/1 if the goal is to be safe harbor in year 2. We don't do that past 12/1 if the goal is to be a safe harbor plan the next year because you'd need to give the safe harbor notice for the next year by 12/1.