New Plan in 2009

[Gary]

An attorney drafted a new 401k profit sharing plan for a company to take effect in early 2009.

The company never used the plan and came to my firm to have us administer the plan.

The owner would have wanted plan to be a safe harbor match plan so they could make a maximum deferral.

SInce plan never used, no deferrals made yet, what is thought about amending plan to be effective say 8/1/09 as a mid year new safe harbor match plan with deferrals first beginning at that time?

I realize an ordinary on-going 401k plan cannot make a mid year conversion, but thought this has different applications.

Any thoughts?

Thank you.

[Laura Harrington]

Did the employer adopt the plan that the attorney drafted (i.e. sign the plan document)?

[John Feldt ERPA CPC QPA]

If the document was executed and did not contain safe harbor provisions before the current plan year started, then the plan cannot adopt safe harbor mid-year for 2009. As far as I know, utilization is not a determining factor.

An exception would be to:

1. adopt a short plan year now that ends July 31, 2009

2. provide the SH notice for the 8-1-2009 plan year

3. adopt the SH provisions by July 31, 2009, and

4. run that plan year for 12 months. You could change the plan year again later after that first 12-month SH plan year.

You may want to consider how that affects deduction of other contributions (not just the deferrals) for 2009.