Safe Harbor Match

[Guest M. Martin]

Good morning,

Can an employer amend the frequency of their safe harbor match from a per payroll period to annual basis for the current year (2006) without losing their safe harbor protection or can they only amend it to be effective for 2007? Their safe harbor notice does not identify the frequency however the SPD does.

Thank you!

[Tom Poje]

the IRS has never really addressed the issue. informally at the 2006 ASPPA conference they frowned upon adding a match during year, but that is different than your scenario. chances are the only people this will benefit are HCEs (e.g. people who hit the deferral and couldn't defer the rest of the year but would benefit with a true up) which the IRS would probably frown upon. I suppose you could have people who didn't defer the first half of the year who would benefit with a true up, so it could be NHCEs as well.

certainly there isn't any reason you can't match weekly or whatever (to avoid having to make one large contribution at the end of the year) and true up at the end of the year, but it sounds like you have a document that says the match will be on a payroll basis instead.

[Guest M. Martin]

Correct, a selection was made in their prototype doc for the SH match to be made on a per payroll basis. I couldn't find anything definitive on this particular scenario either. And even though it's possible that it may be beneficial for both categories (HCE & NHCE), more than likely it would be the HCE's benefiting since they're the ones who can afford to front-load their 401(k) contributions.

It also makes sense that if communicated in advance, either via the SPD or SH Notice, that the match is going to be made on a per payroll basis that it couldn't be changed during the plan year to a different frequency.

The company is going to amend the plan for 2007 to provide for an annual SH match and intend to continue the per payroll funding with a true-up at year-end.

Thank you for your input.