Change to Elig for SH Nonelective Mid-Year

[Laura Harrington]

Calendar year plan with safe harbor nonelective feature. Plan provides that are employees are eligible defer and receive safe harbor nonelective contributions after completing one month of service with quarterly entry dates.

Employer wants to amend the plan to provide that employees are eligible to defer after one month but are not eligible for the safe harbor nonelective contribution until they completed 1 Year of Service with quarterly entry dates. They only want the amendment to apply to employees who are hired after the date the amendment is signed. They plan to sign the amendment ASAP, prior to the end of the 12/31/2009 calandar year.

Is this a permissible change since the change in provisions does not affect anyone who is already a plan participant? They have not been provided a safe harbor notice yet since they are not plan participants (or even employees at this point) so is the issue about making changes mid-year in a safe harbor plan irrelevant?

P.S. I am aware of the issues with regards to testing the group of employees who are not eligible for the SHNE if there is an HCE who falls in that category.

Your opinions are appreciated.

Thanks!

Laura

[Jim Chad]

I don't see any problem. Employees who are not Participants have no rights in the Plan.

[pmacduff]

Also - FWIW - don't forget that if a YOS applies to the safe harbor contribution then you lose the top heavy free ride if the plan is TH...

[Kevin C]

I disagree. 1.401(k)-3(e)(1) prohibits amending the safe harbor provisions during the plan year. I don't see any exceptions listed. The requirements to receive the SH contribution are part of the safe harbor provisions.

I would make the change effective 1/1/2010.