safe harbor match changing from payroll calc to annual

[Santo Gold]

Can a plan switch in mid year from calculating the s/h match on a payroll basis to an annual basis, retroactively effective to 1/1/07? As a result, the s/h match already deposited in 2007 will be applied to the final year-end s/h match that would be determined. I think the answer is "no", but wanted to check if anyone knows otherwise.

Also, if a s/h match is determined annually, can the employer make s/h match deposits on a regular basis during the year anyways? Assuming the employer "plays it safe" and makes sure no one would accidently receive more via these deposits than they would when the final match total is calculated, I can't see where that would be a problem.

Thanks

[Tom Poje]

I suspect that would be a problem, probably under the argument of 'rate of match' will or could change on someone. the reason for the safe harbor notice being provided 'timely' was that someone would make up their mind at the satrt of the year how to defer.

now you are giving a chance for an HCE who didn't defer for the first few months to be rewarded for starting deferrals at this late date. (I'm not saying the change actually effects HCEs, but since it could you know darn well the IRS would give thumbs down)

there is probably no reason you couldn't make deposit on a regular basis even if the match is on an 'annual basis' - e.g. that a true up would be provided at the end of the year, if needed. in fact, as I recall, this was the original way things were done and the IRS later added the option of allocating match on a payroll basis.

[PLAN MAN]

Tom, why did you assume the change would only benefit an HCE? Keeping the same safe harbor match formula and changing the calculation period from pay period to annual would benefit any employee who does not defer consistently during the year. With an annual match a true up must be calculated.

I think this amendment is more generous, so it should be okay. Going the other way could be a problem.

[Tom Poje]

I am not necessarily assuming it will only benefit HCEs - or put a better way- that only HCEs would take advantage of such a change, but therein does lie the problem. it could happen.

lets take it to the extreme and assume the change went into effect the last payroll check. the HCE gets the end of year bonus and defers booka-booka bucks and get the true up over the whole year.

the lowly NHCE defers what extra he can, but the true-up over the whole year will amount to little.

I would not recomend such a practice unless the IRS puts something in writing.

[JanetM]

Santo why don't they just wait for new year to begin the annual rather then payroll matching.

[BG5150]

Santo why don't they just wait for new year to begin the annual rather then payroll matching.

Because the Boss wants a bigger match! lol

[Santo Gold]

Santo why don't they just wait for new year to begin the annual rather then payroll matching.

Because, as Tom had suspected, the change would benefit 2 of the 3 HCEs significantly while it may benefit the NHCEs little, if at all. They will go to annual as of 1/1/08, but they wanted to do something for 2007 as well.

[Kevin C]

Unless we get some specific guidance to the contrary, I would say no, you can't do that. You can't amend safe harbor provisions during the year.

Second sentence of 1.401(k)-3(e)(1):

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.