Safe Harbor and Changing Compensation

[Randy Watson]

Can you retroactively change the Plan's definition of compensation to the beginning of the plan year for a plan using safe harbor match? Doesn't seem right since participants should know by January 1 what compensation will be used for purposes of the cap on the match.

[Kevin C]

No, you can't. See 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1).

1.401(k)-3(e)(1) General rule. --Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of section 401(k)(12) and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of § 1.401(k)-1(b) if it is amended to change such provisions for that plan year. Moreover, if, as described under paragraph (h)(4) of this section, safe harbor matching or nonelective contributions will be made to another plan for a plan year, provisions under that other plan specifying that the safe harbor contributions will be made and providing that the contributions will be QNECs or QMACs must also be adopted before the first day of that plan year.

Even if those provisions were not in the regulations, you would still have a 411(d)(6) anti-cutback rule issue if you tried. The safe harbor match must be required by the terms of the plan and everyone has already earned the right to receive it for 2008.