Amending Safe Harbor Plan

[Shannon]

A safe harbor matching plan wants to make a profit sharing contribution for 2008. The plan would need to add the profit sharing option, currently it just allows 401(k) and safe harbor match. I was told that it could be amended for 2008 since the plan is being made less restrictive, but I have also been told you cannot amend a safe harbor plan mid year except for roth contributions and hardships provisions.

My concern is that not just a profit sharing contribution, when the plan document was prepared there was no vesting schedule selected, since there were no vested contribution options. I think the plan would also have to add a vesting schedule. The plan wants a cross tested formula which would require a new document not just an amendment.

Has anyone added a profit sharing contribution to a safe harbor plan mid year?

[Guest Sieve]

Some would think this an aggressive position, but I believe that the safe harbor contribution and a profit sharing contribution are separate sources, so you would be able to add a gradually-vesting non-elective PS contribution to a SH plan anytime before year-end.

At worst, you could accomplish the same thing by adopting a new profit sharing plan before year-end, commencing as of 1/1/2008. Then, if you subscribe to the theory that the non-elective & SH are not separate sources and also want there to be just one plan, then you'd also need to amend the SH plan, as of 1/1/09, to permit gradually-vested PS contributions, and then merge the new PSP into the amended SH plan sometime during 2009.

You've demonstrated a good reason to always draft a 401(k) plan allowing a discretionary PS contribution with gradual vesting (even if there is not an initial desire to make such a contribution).

[K2retire]

Related question that my brain can't quite figure out this close to March 15: Client wants to make their SH enhanced match plan less restrictive mid year. Currently they have semi annual entry and figure contributions on a comp. while a participant basis. They also have a 6 year graded vesting schedule on their profit sharing contributions. They would like to go to immediate vesting and calculate employer contributions (both SH match and PS) using full year compensation. Since both of these changes are things that are covered in the safe harbor notice, can they be changed mid year?