too late for a 2007 3% safe harbor ?

[Santo Gold]

Employer of an existing 401(k) plan wants amend to the plan to provide for a 3% safe harbor for 2007 even though it is now late December, 2006. The answer is usually (always?) "No", but does the answer change to "Yes" if the plan currently uses a current year ADP testing method, in which case they would have until 12/31 to amend the plan?

Thanks

[Bird]

I don't think the testing method is relevant; you can definitely amend before the beginning of the year. The issue is that you've missed a safe harbor for the notice, and I think a lot of people would say "go for it" since the additiona of the 3% SHNE shouldn't be a significant factor for participants in deciding how much to defer (at least for NHCEs).

[Dan]

The notice is required to be distributed so that participants have adequate time to make their elections. 30 days is deemed to be timely, but no specific length of time is required. I would argue that less than 30 days prior to the beginning of the plan year could be timely too. The plan sponsor would need to make sure that participants had enough time to consider and make elections prior to the first payroll of the year. Perhaps two or three weeks could be timely depending on workforce.

Suppose the first payroll wouldn't occur until the middle of January and the participants had until a couple of days prior to that to make their election. I think two or three weeks prior to the first payroll would probably be alright. Especially as Bird said, since participant deferral elections have no bearing on their safe harbor contribution in this case.