In and out of Safe Harbor year to year

[Guest BJContreary]

I read the feedback from Roger Kuehnle that said a mid-year change from safe-harbor to regular is not permitted. What about year-to-year changes? Can a plan choose safe harbor for 1999, then choose a fully discretionary employer contribution for 2000? If going "in and out" year by year is workable, wouldn't a plan amendment be required for each plan year?

[Guest mberk]

My opinion is that Notice 98-52 implicitly approves year-to-year switching by stating that if you do so, you must use current year testing. However, the anti-abuse rules of Section VIII of Notice 98-1 continue to apply. Although I don't see how it could be deemed to be abusive if you are stuck with current year testing.

[LCARUSI]

Can anyone comment on the other part of BJcontreary's question:

"If going "in and out" year by year is workable, wouldn't a plan amendment be required for each plan year?"

I believe the answer would have t be yes, but I am not certain.

[MWeddell]

Looks to me like the Notice requires one to amend the plan each year unless one knows ahead of time which years are intended to be safe harbor and which ones won't.

[Guest Beth N]

Did anyone ever get firm confirmation on this point? I was thinking you could draft the plan with two options -- option 1 is old plan, with ACP/ADP testing, option 2 is safe harbor, which is only effective year to year if the ER sends out timely notice. Or does section VIII.E of Notice 98-52 preclude hopping in and out?

[LCARUSI]

Beth -

I don't think your approach would work. I believe you'd have to amend the plan each time you want to switch between safe harbor and nonsafeharbor.

[Guest JBeck]

This a response to Beth N. I agree with your approach. That is the way I have written my documents.

[Dowist]

Isn' there a restriction on changing from current year testing to prior year testing? Are there limits if you go out of the safe harbor and decide to use prior year testing?