Change in SH contribution type

[Guest PCS Inc]

I have a client who wishes to amend their 401k PS plan for their next plan year beginnning 9/1/09 from an integrated PS plan to a cross-tested PS plan. Part of the changes would include switching from a SH Match contribution to a SH Profit Sharing contribution. Is it too late to fix the PY beginning 9/1/09? A SH Notice was distributed in July letting them know of the match, but if we did the amendment before the beginning of the plan year, could we somehow amend the SH Notice?

[Tom Poje]

I believe the regs require the notice be provided so that people can make an informed decision.

30 - 90 days is considered 'reasonable'.

can you do less than 30 days? well, you lose the guarantee of 'reasonable', but I suppose you could provide a notice less than 30 days. probably becomes a facts and circumstance issue at that point in the game.

[MWeddell]

I agree with Tom.

It's unclear whether a notice mailed today would be received a "reasonable" period of time before the plan year began to afford participants with an opportunity to change their deferral elections in reaction to what the notice states. Once the notice is given < 30 days before the plan year begins, you don't know for certain that it was timely.

How big is the employer? Is it possible that the employer could get the notice drafted and distributed ASAP and then contact each eligible employee individually to see if they had questions? If there was a certification in the file from a human resources dept. employee indicating that those phone calls were made and everyone understood both the notice and the deadline in case they wished to change their deferral elections, then it would be harder for the IRS or a participant to later assert that the notice wasn't timely considering all the facts and circumstances. Just a wild idea, for your consideration.

[Guest PCS Inc]

The company is quite small, about 10 employees along with 4 HCEs, so we could certainly instruct them to document contact with each employee...

Another thought, just to be "safe"...? Wondering if it would be prudent to have the employer make a 4% SH PS contribution for this plan year only since this is the maximum amount any employee would have received under the SH Match that was first elected. Perhaps this would avoid any perception of a reduction in benefits or any discrimination issues? The employer is planning to maximize the principals using the new cross-tested design anyway which would give a total of 5% to staff, so it would really only be fully vesting 1% more, for peace of mind...