Unfunded 3% Safe Harbor

[DP]

I have a calendar PS 401k plan where the 2007 3% nonelective SH contribution was not going to be funded until 9/15/08. There was no employer contribution for 2007. A 2008 SH notice was given to the employees stating a 3% nonelective SH contribution would be made.

All 401k contributions have been deposited timely.

This corporation has fallen into hard times and they terminated their plan on 5/16/08 with appropriate notice given to the employees.

If the corporation goes bankrupt and cannot fund the 2007 and 2008 Safe Harbor contribution, what happens?

[Jim Chad]

If the 3% SHNEC is not made, they do not have a safe harbor pass on the ADP. I would think they would have to do the ADP test on current year basis and do any required refunds to HCE's.

My guess....FWIW

[DP]

Sounds like a pretty good guess to me. I wonder if it will require a prior year, and current year amendment to remove the Safe Harbor provisions.

[WDIK]

I am not so sure that the outlook is that rosy. I seem to recall that the plan is not allowed to default to the ADP test if the appropriate contribution is not made. Failure to make the required contribution could become a qualification issue.

With respect to the bankruptcy, the following thread may provide additional food for thought.

http://benefitslink.com/boards/index.php?showtopic=35766