safe harbor plan

[k man]

the employer notified employees that the plan was a safe harbor matching formula. later in the year the employer implemented a plan design that requires a safe harbor nonelective in connection with another plan. they basically make a mistake in thinking they had a safe harbor nonelective. would they be able to just make the safe harbor nonelective essentially changing the formula they have in their plan? no ee would receive any less.

[Tom Poje]

I am a bit confused as to what actually happened so I will make an attempt an giving an answer.

a notice is only a notice and not worth the paper it is printed on without a document to back it up.

in fact, the IRS answered as such at the Q and As at this years ASPPA conference in Washington DC. (This was in context of a 3% nonelective)

now, you may have some disgruntled employees (especially if there was no contribution) (In this case, at least you indicated there was a contribution.)

now you say 'no employee would receive any less', but since the basic match can get one up to 4% of comp while the nonelective is typically only 3%, I'm not sure if that is true no employee would receive less.

then you indicated 'later in the year' a safe harbor nonelective was implemented.

at that point I am really confused. a safe harbor notice was issued timely e.g Dec 1.

but apparently no document allowing for a match was signed before the start of the year, therefore 'nullifying' the notice.

however if deferrals were permitted at that time but a safe harbor was implemented 'later' then that sounds like a violation of the 12 month rule for a safe harbor.

In addition, you could have an individual that could say "I wouldn't have deferred if I knew there was no match".

ugh. this one sounds bad in a lot of ways (at least based on the limited info provided.)

Plus all this doesn't address the issue of what the SPD or SMM said.

[if there is an actual document saying a match would be made, then you have to follow the terms of the document and provide the match and all the above becomes a moot point.]