Changes to safe harbor 401(k)

[Guest mberk]

In "What's New" on Benefitslink, an 11/16/98 Pension & Benefits Week article, "Analyzing Notice 98-52" was hyperlinked. Has anyone else read this article? Under Section G of the article, the authors state that

"The pre-plan year amendment rule, requiring an advance commitment to the safe harbors, may be driven in part by the advance notice requirement. However, it can be argued that the pre-plan year amendment rule is more restrictive than necessary or desirable, as it ... would appear to entirely prevent an employer from amending its plan to discontinue safe harbor matching contributions during a plan year, at least unless the 401(k) arrangement was also frozen or the plan was terminated".

While I see that an amendment/election to USE the safe harbor must be made before the beginning of the applicable plan year, I DON'T see anything telling me that I can't opt OUT of it during the year. I admit that I would still have to fund whatever contributions were accrued before adoption of the amendment opting out. Am I missing something?

[This message has been edited by mberk (edited 12-01-98).]

[LCARUSI]

Take a look at my posting on this message board: "Discussion with Author of 98-52 (Safe Harbor 401(k)". It was last updated on 11/13/98.

[Guest mberk]

Although the author seems to have made it clear that it was his "intention" to prohibit such changes, I still do not see it at all in the Notice. Basically I am asking if this "intention" carries any weight if it is not contained in the official guidance we are given. Besides, in saying that it is similar to a money purchase plan, well, we all know that you CAN freeze or amend a money purchase plan mid year, as long as you provide benefits which have already been accrued under the plan's formula. Furthermore I would question the author's ability to "write" the law in this regard, as this restriction is not alluded to in 401(k)(12) or in the Committee Report. Not that it would be the first or last time! I would like to know whether anyone is planning to take a different stance on this. I would also like to propose that it be addressed by the committee submitting comments.

[MWeddell]

I agree that the Notice itself doesn't state this rule, but it's also clear that the IRS will be issuing proposed regulations on this issue after reviewing the comments it receives on the Notice, so it's certainly worth keeping in mind IRS officials' informal opinions because they may eventually get into the regulations.