Switching from basic to enhanced match

[Santo Gold]

Can a safe harbor 401k plan switch from a basic to an enhanced match in mid-year?

[DTH]

I would say yes since the plan will be giving a greater match. The basic match formula will apply up until the plan is amended for the enhanced formula. Also, a new Safe Harbor Notice will need to be provied a month before the effective day of the amendment.

[Tom Poje]

I'd be cautious, the IRS hasn't issued any guidelines.

In a controlled group scenario, you can't aggregate a plan with a basic match with a plan with an enhanced match because of the issues of rate of match being different. I'm not sure how the IRS would view a situation as you described.

or suppose Fred an NHCE, whose wife makes mega bucks, so he doesn't need his salary. he deferred maximum and has capped out for the year. now the plan is providing a richer match and he can't take advantage of it. that won't look good.

[John Feldt ERPA CPC QPA]

Good point Tom. I cannot see the IRS saying an easy "Yes" to this. Does the IRS ever really just say "Yes" without adding strings and caveats?

[Kevin C]

Unless we get some guidance to the contrary, I would say no, you can't amend a SH match formula mid-year, based on 1.401(k)-3(e)(1).

(1) General rule. --Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of section 401(k)(12) and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of § 1.401(k)-1(b) if it is amended to change such provisions for that plan year. Moreover, if, as described under paragraph (h)(4) of this section, safe harbor matching or nonelective contributions will be made to another plan for a plan year, provisions under that other plan specifying that the safe harbor contributions will be made and providing that the contributions will be QNECs or QMACs must also be adopted before the first day of that plan year.