Safe Harbor Plan

[Jilliandiz]

Plan is a Safe Harbor Matching calendar year plan. Terminated 6/30/05. Do they have to contribute the Safe Harbor Contribution in the year of termination? Also, are they only required to contribute the amount from 1/1/05-6/30/05? Or does it have to be the entire year?

[Tom Poje]

this is all explained fairly well in 1.401(k)-3(d)(4) [Final Plan Year] of the final regs. granted your plan terminated before the final regs go into effect, but absence other guidelines I would use them.

I would strongly recomend having a copy of the final 401k regs close by, especially the whole of 1.401k-3 which deals entirely with safe harbor plans.

general rules are:

plan provides 30 days notice of suspension of benefits [thus contributions stop at the end of the 30 days notice]

plan amended to provide ADP testing for the entire year using current year method

and then there is a some stuff regarding the suspension notice itself.

[Jilliandiz]

Thanks for the response, where do I get a copy of the Final Regs?

[Tom Poje]

now there is an excellent comment.

somewhere on this Benefits Link you can subscribe to a daily newsletter.

then everyday you get an email listing 10 or so short topics.

many moons ago, one of those was the regs. and those are the ones I grab right away. the nice thing is you get the preamble as well, and usually they are in 'english' and explain a little better the regs.

now, all that being said, where you find those after the fact, well, you are talking to chief of idiots at that point.

the follwoing website will list the different regs you can print

scroll down and find 1.401k and there will be the different sections.

I am sure there are better resources, but this is the one that popped up on a google search.

http://www.access.gpo.gov/nara/cfr/waisidx...26cfr1e_05.html

[Jilliandiz]

Thanks for replies, however does the rules change when dealing with a 3% SHNEC?

Does the plan still have to use current ADP testing? Why wouldn't it be deemed passed if they were required to give the 3%? Is the 3% required in the year of termination? What wages would I test on?

I dont understand why you consider the plan to be a short plan year? The termination date is effective for 6/30/05, the IRS approved it last week, but the assets are not fully liquidated until sometime in 2006? Can you help clarify this for me? I've read everything, but everythign pretty much discusses if the plan was a SHMatching contribution....this case is a SHNEC?

[Tom Poje]

50 points to the wise individual. you are correct, the regs only talk about a SHMAC.

like you, I wondered about this since it really isn't in the regs, so I asked this at the ASPPA Q and A

this was

Question #12 at the 2005 ASPPA conference

The IRS response was

"We believe the same provisions applicable to matching contributions would apply to non-elective contributions. For example, this would include the 30 day notice under 1.401(k)-3(e)(4)"

IRS responses at such meetings always carry the caveat that they might not represent an official position of the IRS.

I think the idea of requiring current year testing is because you have no numbers from the prior year - you had a free ride and there was no test.

[Jilliandiz]

Do you think the employer still needs to provide the 3% through 6/30/05, eventhough deferral participation doesnt have an effect on whether or not they get it? What stance would you take on this?

[Tom Poje]

I'd say yes.

the document must be followed and it said a 3% would be provided. (I did not go back and look and see what happens if you are talking about distress termination)

rememebr, the plan did have the choice to make the 3% as a 'maybe', so I think the IRS argument would take that into consideration. if you didn't use that option, out of luck.

in other words, it doesn't sound much different than terminating a money purchase plan, you still have to make the contribution through the date of termination.