safe harbor timing question

[K2retire]

I'm back at work, but it appears that my brain may still be snorkeling in Hawaii.... (Couldn't find Blinky, though.)

Plan sponsor signed documents mid-September for a new calendar year safe harbor plan effective in 2008. Deferral election forms were submitted by several employees before 9-30. Client has now decided that there is no way he can begin deferrals before 11-30 for anyone. Upon hearing that was not a viable option, he would like to "amend" the plan to become effective 1-1-09.

I'm thinking that they currently owe QNECs for the deferrals that didn't get made, and I've already nixed the proposed "amendment". What am I missing?

[Tom Poje]

at the ASPPA coference, a similar question was asked about a plan modifying its 401k to be a QACA as of 1/1. would it be ok to provide the notice as of 1/1 and take out deferrals starting starting 2/1 (30 days after the notice) the IRS says NO you violate the 12 month rule, that you have to give 30 days notice before the plan year.

unfortunately, they offerred no solution if you were late implementing something, simply that you couldn't plan on doing something like this.

since you have a document in place which says it will be safe harbor, since the time fram for the first year is indeed 3 months which satisfies the condition for the safe harbor, then I think you have an operational failure - namely, failure to implement elections of employees to have deferrals taken from paychecks. EPCRS tells how to correct that. (along with making whatever safeharbor contributions are required)

I believe the IRS at the conference said something like "Don't set something up if you aren't really ready to implement it"

my opinion and interpretation of the IRS comments as well.

[K2retire]

Thanks.

I agree they shouldn't have set it up. Many of our clients (and the brokers who sell our plans) don't seem to comprehend that they are signing a legal document that obligates them to do certain things within a prescribed time frame. Sadly, these are usually the same ones who don't bother to read the information that we send on that subject.