June 30 plan year end

[John Feldt ERPA CPC QPA]

A company has been shutting down its operations for the last few months and never provided a safe harbor notice regarding the July 1, 2009 plan year because they intend to close their doors soon.

In a non-pension DC plan, a 401(k)/PS plan, the plan can be terminated without any required advance notice. However, for a safe harbor 401(k) plan to terminate mid-year, a 30-day advance notice is required.

What about a termination of a safe harbor 401(k) plan on the last day of its plan year, not mid-year, when no safe harbor notice was provided for the next plan year? Is a 30-day advance notice required to terminate? So far, I only see the 30-day notice reference with regards to mid-year terminations.

[Guest Sieve]

I think you're correct--i.e., no notice is required for a SH plan termination at year-end.

Of course, as per the regs, there officially cannot be a SH plan without the SH notice prior to the beginning of the year, and that notice promises the SH contribution for the entire year (not including the "maybe" SH plan/notice). So, there can be no change during the period of the promise--i.e., during the plan year covered by the pre-year SH Notice--without the required notice of that change.

And, of course, 204(h) does not apply to a PS/401(k) plan.

[Kevin C]

If the plan termination is in connection with a 410(b)(6)© transaction or the employer incurs a substantial business hardship, I'm not seeing an advanced notice requirement. Here is a description from the preamble to the final regs.

The final regulations adopt the exceptions to this 12-month rule that were set forth in the proposed regulations. Thus, a section 401(k) safe harbor plan could have a short plan year in the year the plan terminates, provided the plan termination is in connection with a merger or acquisition involving the employer, or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(d). A section 401(k) safe harbor plan could also have a short plan year in the year the plan terminates (without regard to the reason for the termination or the financial condition of the employer) if the employer makes the safe harbor contributions for the short year, employees are provided notice of the change, and the plan passes the ADP test. In either case, the employer must make the safe harbor contributions through the date of plan termination.

Of course, in your situation, today is the last day of the plan year. I don't see anything that requires advanced notice to terminate on the last day of the regular plan year, either. If the plan document still has the SH provisions in effect on July 1, then you would be under the mid-year termination rules.

[Guest Sieve]

I agree that a mid-year plan termination due to either business hardship or change in controlled group status does not require notice. In addition to the preamble language, it's also clear in the regs: a "normal" plan termination is treated as if it's a reduction or suspension of the SH contribution (which requires notice), while there's no comparable language for the merger/acquisition or business hardship plan termination. (Treas. Reg. Section 1.401(k)-3(e)(4).)