Safe Harbor notice - OOPS!

[PAL]

An employer decided, effective with the plan year beginning 1/1/08, to add a safe harbor match to an already existing 401(k). They sent the notice on December 1, 2007 but, yes - you know what's coming - they missed a group of employees (about 15%) when sending the notice.

Can this be corrected and the safe harbor status maintained? The 401(k) reg don't appear to allow the plan to have a fall-back ADP/ACP testing if it is a safe harbor. Question #10 from the June 2006 ASPPA Q&A's indicates that it could be corrected under VCP but I'm not sure what the correction is:

http://www.irs.gov/pub/irs-tege/epcrs_asppa_qas.pdf

Has anyone used VCP for this before? I guess that the company could go back and eliminate the safe harbor match (giving notice of course) which is really not to the advantage of the participants. I don't know that they have actually signed the plan amendment yet. Am I missing something here - there should be a better way to fix it. Other ideas? Thanks.

PAL

[Tom Poje]

suppose you pass the notices out today - would people still have a 'reasonable' time to make a decision?

probably yes, unless of course they are off on Christmas vacation already.

remember, the 30 days gvie you an IRS guarantee of providing a reasobale time.

If the number of ees effected is small, if they were personally told, etc are all factors that could come into play in deciding if you are being reasonable.

[PAL]

Thanks for your response. Yes, I thought about that but everyone seems to treat 30 days as the drop dead rule. Do you know of anyone who has sent the notice later and been challanged on it?

PAL

[JanetM]

We sponsor 5 401K plans. Each year, starting in mid November, we mail safe harbor notices. We mail almost 16,000 letters and the average undeliverable rate is close to 10%. We spend December getting updated addresses and remailing the letters. Have been doing this since safe harbor was available and we have never been called on it. You do the best you can.

Quick, contact the folks who weren't notified and make sure they understand the benefit for 2008. Seems to me there is still time for them to make a decision. Fail safe is to add true up so that even if they missed the first deferral in 2008 they will be made whole by year end.