Removing safe harbor match mid-year

[Guest IU1994]

Does Section 1.401(k)-3(g) permit the reduction or suspension of safe harbor matching contributions mid-year, if the plan document specifically states that such contribution will be determined based on the entire plan year? Or does it permit reduction or suspension of safe harbor matching contributions only when such contribution is determined and paid throughout the year (i.e. each payroll period)?

[J Simmons]

The safe harbor match may be stopped mid-year on future elective deferrals, even though the cap on match is measured as a percentage of the entire year's compensation. Treas Reg § 1.401(k)-3(g)(1). The limit of 4% of compensation would yet be measured as specified in the plan, for the entire plan year on your question.

For example, suppose that EE earns $10,000 a month, $120,000 a year for 2009. Of that $10,000 a month, EE electively defers $1,000 a month. The 30 day notice is timely prepared and given--and the other requirements of Treas Reg § 1.401(k)-3(g)(1)--to stop match effective 3/31/2009. As of that date, the EE has earned $30,000 compensation and electively deferred $3,000.

EE would be entitled to matching contributions equal to $3,000 because that does not exceed $4,800 (4% of the 2009 earnings of $120,000). However, by stopping the match effective 3/31/2009, EE will not receive any match for elective deferrals after that date--not the other $1,800 ($4,800 - $3,000).

Of course, stopping the safe harbor match mid-year, you'll have to pass ADP/ACP testing and make top heavy minimum contributions (if applicable) for the entire year.

[QDROphile]

What about 401(a) (17) limit proration of compensation for calculation of the match? Section 1.401-k(3)(g)(1) says that the ADP test must be satisfied for the entire plan year, and section 1.401-m(3)(h) says that the ACP test must be satisfied for the entire year, but neither says the plan may use compensation for the entire plan year for calculation of the match. And what about compensation for testing of the match, which is in effect for less than 12 months? This is not a typical entry date issue that is expressly covered by the regulations.

[Guest Iwonder]

I have the same situation...discontinuation of safe-harbor matching contributions.... and appreciate the kind assistance that has already been provided.

We are preparing a notice advising participants of the discontinuation of the safe-harbor match contributions. Has anyone already prepared a notice of this nature? If so, would you please share your draft.

Unfortunately, in this current economic climate, I fear a similar notice will be frequently prepared.

Thank you.

[K2retire]

If you use Relius documents it's part of your package of forms from them.

And yes, we're seeing several of these every week.

[Guest Iwonder]

If you use Relius documents it's part of your package of forms from them.

And yes, we're seeing several of these every week.

Unfortunately, we do not use these documents.

[R. Butler]

If you use Relius documents it's part of your package of forms from them.

And yes, we're seeing several of these every week.

We use Relius Documents. Where do I find that notice? I've never seen it.

Thanks

[Kimberly S]

It's in a file called ERISA forms. Our system administrator has saved it to our network drive, so I'm not sure where to direct you.

[austin3515]

If I'm not mistaken, that package is sold separately from the document software.

[J Simmons]

If I'm not mistaken, that package is sold separately from the document software.

Read: Pay Corbel more and you get it.

[R. Butler]

That explains why I have not seen it. We don't want to pay Corbel more.

Thanks