Safe Harbor "Maybe" Notice

[Alex Daisy]

A Plan has a Safe Harbor option in it. The client is worried about falling non discrimination testing but is not completely sold on the Safe Harbor route.

Can someone explain to me the Safe Harbor "Maybe" Notice and what is required? I understand that it cannot be the Safe Harbor Match and can only be the Safe Harbor Non - Elective.

What is the timing involved and does a follow up notice have to be given if the Safe harbor Contribution is made?

Thank you in advance.

ALEX

[Tom Poje]

30 - 90 days before plan year BEGINs you issue a notice saying "we might give a 3% SHNEC next plan year"

if indeed the SHNEC will be made you issue a notice at least 30 days before plan year END saying you will make the SHNEC. at that time you also amend the plan to be safe harbor for that year (and future years if you decide to go permament)

if you decided not to go safe harbor you would probably do the same thing again, issuing a new 'maybe' notice.

[Alex Daisy]

30 - 90 days before plan year BEGINs you issue a notice saying "we might give a 3% SHNEC next plan year"

if indeed the SHNEC will be made you issue a notice at least 30 days before plan year END saying you will make the SHNEC. at that time you also amend the plan to be safe harbor for that year (and future years if you decide to go permament)

if you decided not to go safe harbor you would probably do the same thing again, issuing a new 'maybe' notice.

Assuming I send out the "Maybe" notice now, I cannot wait till the beginning of 2010 and see if my 2009 ADP test fails, and then send out the Notice saying that the SHNEC will be made?

If the SHNEC is to be made, a follow up Notice must be given at the end of 2009?

Whats the advantage of doing a Maybe Notice then?

[PensionPro]

By Nov 30, 2009 you would have an idea of (a) employee participation levels and (b) the results of the ADP/ACP tests for 2009.

[Bill Presson]

Assuming I send out the "Maybe" notice now, I cannot wait till the beginning of 2010 and see if my 2009 ADP test fails, and then send out the Notice saying that the SHNEC will be made?

If the SHNEC is to be made, a follow up Notice must be given at the end of 2009?

Whats the advantage of doing a Maybe Notice then?

It let's you run a projected ADP/ACP test late in the year and see what is happening. If you pass or are very close, you might not do the SHNEC.

It just gives you some planning options.

[doombuggy]

Yep, I have a client that has this - they have never amended the plan to do the safe harbor, but I checked with him earlier this week to see if they wanted it. If they did, I would have gottne them a definate notice to hand out asap (for 2008) and amended the plan to have it for 2008. I am getting ready to send him a safe harbor maybe notice for 2009...

[Tom Poje]

the other 'advantage' so to speak, is that, in economic times like these, the employer is not forced to make the contribution. they simply fail their test and take their refund.

[austin3515]

I'll add another wrinkle - if, as Tom suggested, discretion is desired, then if the Plan is top-heavy, make sure the owner's/officers (i.e., keys) don't do any 401(k) until the decision has been made. If the any keys do more than 3% of 401(k) and then they opt not to make the safe harbor non-elective, then the top-heavy minimum will apply anyway, which is the same 3% of pay (basically), but the owner gets no exemption from the ADP test.

Those dreaded top-heavy rules...

[Guest Sieve]

Yet another wrinkle, as I think you point out, Austin--if the plan clearly is top heavy, go for the safe harbor without the "maybe". You get a two-fer with the SH nonelective.

[BG5150]

Yet another wrinkle, as I think you point out, Austin--if the plan clearly is top heavy, go for the safe harbor without the "maybe". You get a two-fer with the SH nonelective.

Only as long as there are no other ER contributions such as match or reallocated forfeiture or profit sharing.

[Guest Sieve]

If the plan uses a nonelective SH contribution, then all participants receive 3%, so you meet TH anyway (even if there are other contribution sources). Only if the SH contribution were a match would another contribution source perhaps require an additional TH contribution (because not everyone would get 3%).

[Tom Poje]

maybe, maybe not. A safe harbor contribution can be based on compensation from date of entry, while top heavy is always based on compensation for the whole year, regardless of date of entry.

[Blinky the 3-eyed Fish]

....unless SHNEC is from date of plan entry compensation.