Switch from safe harbor matching plan to safe harbor 3%

[Guest rdemyan]

Is it possible to switch from the matching safe harbor 401K plan to a nonelective 3% safe harbor 401K plan during the plan year? Currently, our plan provides the typical 3% match up to an employee's elective contribution of 3% of compensation and then 50% of additional elective contributions up to 5% of an employee's compensation. So the maximum match is 4% of compensation. If we can make the switch to the nonelective 3% safe harbor, then we will actually contribute 4% this year for all eligible employees. This is because some employees have already received the 4% match based on the elective contributions they have made to their 401K plans and we wouldn't want to reduce the match as a result of the proposed safe harbor switch.

We would like to make this switch effective for the 2009 plan year.

[Tom Poje]

no. the notice provided indicated a particular contribution was going to be provided for the entire year. you can not switch mid stream.

[Guest rdemyan]

OK. So here it is December 29th. Can we provide a notice today for the 2010 plan year that we will be switching to a safe harbor 3% nonelective contribution? I know that the guidance is to provide this notice 30 days before the beginning of the plan year. However, we pay monthly at the end of the month, so contributions for 2010 won't be made until the very end of January to early February. So we've effectively provided at least 30 days notice prior to any contributions actually being made.

Are there any problems with sending the above-mentioned safe harbor notice for 2010 today?

Thanks.

[Tom Poje]

I think in the case of the 3% SHNEC you can probably get by since it really shouldn't effect someone decision to defer. on the other, 30 days ago someone might have expected a match and so decided to defer. however , since you pay monthly which is 30 days, then it sounds like someone should be able to make a 'reasonable decision' and stop deferrals if they so desire. plan must be amended by 12/31/2009