Suspending or Amending to remove Safe Harbor

[Guest Twinky]

I have a client with a Safe Harbor plan that has a Safe Harbor Match of 100% of the first 4% deferred. The Safe Harbor notices went out timely.

The client (as of yesterday) wants to either suspend the Safe Harbor Match (at least for next year), or amend the plan to a Non Safe Harbor plan beginning 1/1/09. (They haven't decided yet.) Can they do this so late in the game for the plan year beginning 1/1/09? If so, what requirements/notices would be required? (I assume that if it is allowed and they are suspending, a notice to suspend is required, but anything else? I assume that if it is allowed and they are amending, docs need to be done before 12/31, but anything else?)

Thanks for all your help!

[K2retire]

They can amend to remove the safe harbor match effective 30 days AFTER they notify the participants that they are doing so. It is too late for it to be effective 1-1-09 at this point. They will owe the match for January (or 30 days after whenever they decide) and will have to be tested on a current year basis for all of 2009.

[Kevin C]

The rule K2retire is referring to applies for changes to a SH match DURING the plan year. Unfortunately, there is no official or unofficial guidance addressing your exact situation.

Here is a previous discussion:

http://benefitslink.com/boards/index.php?s...=40717&st=0

[Guest Twinky]

Wow! There was a LOT of discussion on this situation huh?

It's now clear as mud to me. I can't tell by the prior discussions if it's a yes or a no. What I got from it is; I assume that since the document rules, and if it's amended before the beginning of the plan year, that an amendment can be done and no SH contribution for 2009 would be required. I can only imagine though, that if an employee wanted to fight it, they could have a good case. Or you could take the safe side and give 30 days notice before stopping the SH contributions. (But then there's the question of; the SH must be for 12 months (unless a new company).?)

Thanks for all your help. It's greatly appreciated!

[K2retire]

Or you could take the safe side and give 30 days notice before stopping the SH contributions. (But then there's the question of; the SH must be for 12 months (unless a new company).?)

Thanks for all your help. It's greatly appreciated!

Our interpretation on that is that you make the safe harbor matching contribution for the partial year, but the entire year is subject to ADP/ACP testing.

[Bird]

Twinky, I think there is a lot of confusion related to notice requirements when you are using the safe harbor, and discontinuing one during the year, but this is a different situation and there simply is no guidance. And I don't know that there has to be - IMO, the original notice doesn't obligate the sponsor to do anything until the first of the year is reached, then you have to deal with the "removing a safe harbor during the year" rules.

But I don't think it's such a big deal to issue a new "oops" notice superseding the first one, as long as it is done before the beginning of the year and the plan is amended before the beginning of the year. You could argue that it is "safe" to give a new 30 day notice suspending the safe harbor, but you (I) could also argue that the notice has no effect until January 1, and that a new 30 day notice is making things worse, because there was no obligation to provide SH contributions on Dec 30 or whatever day you actually issue the notice.

[Guest Twinky]

Thank you everyone! Bird, you explained it beautifully. And K2, that makes sense to me.

We got that taken care of and now we have the other situation.

The new year has started and the employer (different employer) wants to stop the safe harbor match for 2009. I told him he will be obligated for January and at minimum 1/2 of February. I expained that testing will be required for the 2009 plan year. He's ok with all that.

I assume 30 days notice to employees and an amendment/restatement of the document will suffice?