Can a company announce a 401k Safe Harbor change and then abandon the change the next day?

[Guest helcul]

I received a 401k Safe Harbor notification on Friday December 1.

On the following Mondy, I received another email saying that my employer is changing their mind because too many people called to increase their contributions!

Is there somethink wrong with this? I assumed there would have to be a reasonable announcement time to abandon just like there is to switch the plan.

thanks for any references,

Helcul

[Guest Pensions in Paradise]

Assuming we are talking about the 2007 plan year, the employer can eliminate the safe harbor provision since the plan year has not started yet.

Even though the company will not be making a safe harbor contribution, you should still consider contributing to the plan.

[Guest helcul]

Its actually for 2006 and 2007. I think the well paid employees (the owners of the company) expected their 2006 tax savings to exceed the amount they would have to pay for the lower paid employees matching. It looks like they may go back to paying that money to themselves as bonuses instead of trying to give themselves 401k matching.

Last year I put my money into an IRA instead of the 401k because there was little tax difference and I put the money intp a better fund than was available in the plan. I did accelate my 401k contributions for 2006 because I suspect the plan is failing compliance and they cannont afford the cost of dealing with it.

[david rigby]

Its actually for 2006 and 2007.

A safe harbor notice is required before the plan year begins, so a 12/01/06 notice cannot apply to the 2006 plan year (unless the plan year begins 12/31/06).

[Kevin C]

There is one situation where a 12/1/2006 SH notice will apply to a 2006 calendar year. If they issued a conditional 3% notice a reasonable period of time before the beginning of the 2006 year and the 12/1/2006 notice is a supplemental notice, it will apply to the 2006 year. If they combined the 2007 SH notice with the supplemental notice for 2006, the same notice would refer to both years.

Or, the notice could have been done incorrectly. We need more information on the content of the notice.

helcul,

What did the 12/1/2006 notice say the SH contribution would be and what plan years does it refer to? From your description, it sounds like the 2007 contribution was to have been a SH match, but what does the notice say about 2006?

[Guest helcul]

helcul,

What did the 12/1/2006 notice say the SH contribution would be and what plan years does it refer to? From your description, it sounds like the 2007 contribution was to have been a SH match, but what does the notice say about 2006?

Kevin,

Following is part of it. It was clearly meant for 2006 and 2007. This is the first time they have mentioned the words Safe Harbor. I believe the timing of it was improper (and sordid).

Helcul

2006 SAFE HARBOR 401(k) NOTICE

The Company has adopted a safe harbor contribution structure.

SAFE HARBOR CONTRIBUTION

For the 2006 plan year the Company will provide the following contribution:

A safe harbor matching contribution equal to:

etc..

[Guest Pensions in Paradise]

From what you've posted, the plan must provide the safe harbor match for the 2006 plan year. Keep in mind that the safe harbor match must be declared by December 1 preceding the start of the plan year. So the notice they gave you last year for 2006 locked them in to a safe harbor match for 2006. (All of this assumes a calendar year plan.)

What does the 2007 notice say?

Hold on, I just reread your prior post and I'm confused. Is the language you quoted from the notice issued in 2005 or the notice they just issued in 2006? Something isn't right.

[Guest helcul]

Hold on, I just reread your prior post and I'm confused. Is the language you quoted from the notice issued in 2005 or the notice they just issued in 2006? Something isn't right.

This is all from last week. Last summer(2006) was the first time that the company mentioned they were going to match 0.5 percent and were considering other options. That was all they said. I think they were trying to get more participation with that token matching. Last week they said they were going to change to Safe Harbor 401k for 2006 and 2007 and now this week they are saying they are changing their mind back.

Its too bad I like my job so much because my management is daft.

[Kevin C]

For the Plan to be a match safe harbor in 2006, it must have been amended by 12/31/2005 to included the safe harbor provisions. The safe harbor provisions must also be in effect for the entire year (unless the plan terminates or they provide proper notice of the discontinuance of the safe harbor contribution). The 2006 notice was required to be provided a reasonable period of time before 1/1/2006, but the IRS has indicated in informal guidance at pension seminars that failure to timely provide the notice can be corrected by providing the notice at a later date.

If they amended the Plan to provide a safe harbor match for 2006 it would have to be effective 1/1/06. The notice says "adopted" so it sounds like they amended the plan. They can only suspend the safe harbor match during the plan year if they provide at least 30 days advanced notice to participants that they are suspending the safe harbor contribution. The safe harbor contribution is a required contribution and can only be eliminated prospectively. We are less than 30 days from the end of the year and you haven't mentioned a notice of suspension, so they would not be able to stop the safe harbor match before the end of the 2006 year. Of course, that assumes they actually amended the plan to provide the safe harbor match in the first place. Even if the amendment was not done timely, it would have added a required contribution to the plan for 2006.

For 2007, they can amend the plan to not be safe harbor. The notice by itself doesn't make the plan safe harbor. The plan has to contain the safe harbor provisions.

As a participant, you have the right to examine the plan document, including all amendments. You can request a copy, too and they have to provide it. They can charge you a reasonable copying charge for a copy of the document. If you want to pursue this, you will need to find out what is in the amendments, if any, that were adopted.

[Guest helcul]

Kevin,

Thanks for the advice, I'll request the Plan Document to see what was adopted.

Helcul