safe harbor plans

[Guest Jennyb473]

if you have given out the safe harbor notice at least 30 days prior to the start of the new plan year and then decide, still before the start of the new year, that you don't want to do the safe harbor, can you still change your mind and stop it or do you have to give a new 30 day notice to stop it?

thanks!

[Tom Poje]

30 days is deemed to be 'reasonable'

there is nothing to prevent you from using a shorter period, other factors to consider:

# of people involved

if its a 3% SHNEC, its less likely to be viewed as something effecting a participants decision to defer

etc

[BG5150]

Next step: amend the plan to be a "wait-and-see" safe harbor. Sometimes called "conditional."

[Kevin C]

This topic was discussed at length this time last year. My opinion is that if you amend a calendar year plan by 12/31/2009 to remove the safe harbor effective 1/1/2010, then your plan is not safe harbor for 2010, even if they already sent out a 2010 SH notice. The 30 day advanced notice requirement for stopping the SH contribution is part of the rules for mid-year reduction or cessation of the SH contribution, so it would not apply.

The affected participants should be notified of the change asap. Otherwise, you will probably have an employee relations mess on your hands.

[Guest Sieve]

Don't you think you also should need to amend the Plan, as necessary, prior to 1/1/2010 to eliminate the SH contribution language?

[Kevin C]

That would be part of the amendment to remove the SH. In our VS and prototype documents, when you amend to not be SH, it also removes the previous selections in the remainder of the SH section of the adoption agreement.

[Guest Jennyb473]

thanks for all your responses. We have spoken with a plan attorney and gotten the same response as you all have provided and passed that on to the client, stressing the employee relations side of it!

[cpc0506]

Don't you think you also should need to amend the Plan, as necessary, prior to 1/1/2010 to eliminate the SH contribution language?

In line with this question, we have a slightly different scenario. A client established a safe harbor document effective 1/1/2008. Due to financial constraints, the client could not pay us to complete their Form 5500 for 2008 and chose to fill out the 2008 Form 5500 themselves and basically terminated our services as TPA in September 2009. A safe harbor notice was provided for 2009 and now that the client has some funds, they want us to complete the plan year work for 2009 and onward. (They came back to us in February 2010.) This is just some history that now leads to my issue.

No safe harbor notice was provided for 2010. No amendment was adopted to remove the safe harbor language from the plan for 2010.

Is the plan 'safe harbor' for 2010? Can we just complete the EGTRRA restatement with an effective date of 1/1/2010 for the client removing the safe harbor language? The adoption date of this restatement will obviously be sometime between now and April 30. 2010.

Any guidance would be appreciated.

[Kevin C]

If the plan document says the plan is safe harbor, then it is safe harbor. If no SH notice was provided, then you have an operational failure because the terms of the plan were not followed. Here is a discussion of the correction:

http://benefitslink.com/boards/index.php?s...c=42657&hl=

If they did not deposit the SH contribution for 2008 and/or 2009, that is another operational failure, which can be corrected under EPCRS.

If they want to stop the safe harbor contribution, they have to follow the rules for mid-year suspension of the SH contribution, including 30 days advanced notice to participants. The SH contribution is a required contribution, so it can not be retroactively removed.

An EGTRRA restatement effective 1/1/2010 needs to include the SH contribution since it was in the plan at that point. Then you can amend effective in May 2010 to stop the SH contribution provided you follow the mid-year suspension rules.

[Mike Preston]

Just a small clarification. You need to check the language in the plan. There is at least one volume submitter plan that conditions the status of a plan as being safe-harbor or not on the notice being sent out. If the notice isn't sent out, the plan is not a safe-harbor plan for the year and is therefore subject to ADP/ACP testing. In this particular case the IRS might have gone along with it based on the fact that the language regarding the safe-harbor contribution (the 3%) is not modified. Hence, if the notice doesn't go out, the plan is subject to ADP/ACP testing and the plan sponsor is still required to make the 3% contribution.