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Safe Harbor and unterminated plan

Dennis Povloski

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This is an extension from a post in the plan termination board.

I've come across a plan that has been terminated. It did have a safe harbor provision though I'm not sure if it was the match or non-elective. Now the client wants to rescind the termination. From what I understand, the distribution forms have been delivered to the participants, but no distributions have commenced.

I'm pretty sure that we can unterminate the plan, but if we do that, the safe harbor falls apart. If I have to test the plan, I'm pretty sure it will fail at this point.

If the safe harbor is the non-elective, and they make the full non-elective, is there any way to salvage the safe harbor?

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I don't think so.

The plan was changed during the year (terminated), which affects employee deferrals (stops them) so the requirement under 1.401(k)-3(e) "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" has not been satisfied.

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