I didn't think you could do this

[PLAN MAN]

Calendar year plan, revised safe harbor notice:

2. Contributions for the Plan Year Beginning January 1, 2009.

b. Safe Harbor Matching Contribution effective for the Period January 1, 2009 through May 23, 2009. The Employer will make a Safe Harbor Matching Contribution equal to 100% of the amount of your 401(k) contributions that do not exceed 6% of your compensation. Compensation generally includes all taxable compensation paid to you during the Plan Year (or from the time you enter the Plan), plus your 401(k) and cafeteria plan contributions. If you terminate employment during the Plan Year, you will be eligible to receive the Safe Harbor Matching Contribution if you have made 401(k) contributions during the Plan Year. You are not required to be employed on the last day of the Plan Year to receive the Safe Harbor Matching Contribution.

c. Safe Harbor Matching Contribution effective for the Period May 24, 2009 through December 31, 2009. The Employer will make a Safe Harbor Matching Contribution equal to (a) 100% of the amount of your Elective Deferral Contributions that do not exceed 3% of your compensation and (b) 50% of your Elective Deferral Contributions that exceed 3% of your compensation but that do not exceed 5% of your compensation. In other words, if your Elective Deferral Contribution equals or exceeds 5% of your compensation you will receive a Safe Harbor Matching Contribution equal to 4% of your compensation. If your Elective Deferral Contribution is equal to 3% or less of your compensation then you will receive a Safe Harbor Matching Contribution equal to the amount of your Elective Deferral Contributions. Compensation generally includes all taxable compensation paid to you during the Plan Year or from the time you enter the Plan, plus your Elective Deferral Contributions and cafeteria plan contributions (if any). If you terminate employment during the Plan Year, you will be eligible to receive the Safe Harbor Matching Contribution if you have made Elective Deferral Contributions during the Plan Year. There is neither an hours of service requirement nor a last day of the Plan Year employment requirement fr you to receive the Safe Harbor

Matching Contribution.

Is there any new guidance from the IRS on this? Does their attorney know something I don't know?

[K2retire]

It is my understanding that an amendment like you describe would require that 2009 be subject to current year ADP/ACP testing.

[Kevin C]

The most recent guidance that mentions the rule you remember is the proposed regulations from 5/18/2009. They renumbered 1.401(k)-3(g)(1), but did not change it. The proposed regs add provisions for mid-year reduction or suspension of the non-elective SH.

http://www.irs.gov/pub/irs-irbs/irb09-22.pdf

It starts on page 13.

If their attorney knows something the rest of us don't, please let us know.

[jkdoll2]

1) The plan may be amended to reduce the matching contributions however, it is not longer a safe harbor match. Presumably the participants were given 30 days notice before the reduction in safe harbor match.

2) The plan loses it's safe harbor status for the plan year. The requirements for stopping the safe harbor match are:

(1) make the match for the year to date

(2) perform ADP and ACP testing for the entire year

(3) provide thirty days notice

Notice 2000-3 as well as the final regulations state that a plan using the safe harbor matching contribution method may be amended during the plan year to reduce or eliminate safe harbor matching contributions on future elective and employee contributions during the plan year, and instead use current year ADP and ACP (if applicable) nondiscrimination testing for the plan year (IRS Notice 2000-3, Sec. III, Q&A-6).

[PLAN MAN]

From a publication by J.P. Morgan Retirement Plan Services, March 26, 2009

Note that if the employer reduces the safe harbor matching formula (e.g. an enhanced matching formula) but the reduced formula still satisfies the safe harbor minimum contribution requirement, ADP/ACP testing applies for that plan year, because a uniform formula must be in effect for an entire plan year for the safe harbor requirements to be satisfied for that year.

[PLAN MAN]

Update:

Here's the latest communicaiton from the client.

"Our plan attorneys were involved from the beginning and provided guidance on amendment & notification as well as dates. We followed their advice on procedures/notices/changes and it’s documented. They also researched the Safe Habor with IRS regulations and said it was okay to proceed. We originally wanted only a 3% match rate but the attorneys stated that would cause issues with the Safe Harbor. We changed to include a 50% match after 3% up-to 4% to stay in compliance."

I guess the attorneys do know something I don't know. Maybe someone will ask the IRS at the ASPPA Conference for a definitive answer.

[Guest Sieve]

Or, they don't know something you do know . . .