Safe Harbor Notice given but plan not signed

[Guest Pension Girl]

We have a 403b plan that intended to use the 3% SHNEC for 2010 and gave the safe harbor notice timely. However they did not sign the restated 2010 plan document which implemented the safe harbor formula, so the plan will not have to run ACP testing. However the client now does not want to implement the 3% safe harbor and claims they do not have to since they have not signed the plan yet. I am thinking that the participants could have a cause of action against employer for promising a 3% nonelective, however their deferral elections were not impacted by the safe harbor notice. How do we correct?

[Tom Poje]

Q & A 19 from the 2007 Conference

Q19) Safe Harbor 401(k): A notice is issued indicating a safe harbor contribution will be made for the upcoming year, but the plan was never amended to contain safe harbor language. Now that it is after plan year end, it is too late to amend to correct the problem. Is the plan on the hook for the contribution, and must also run all appropriate tests?

A: Notwithstanding the notice provided, the plan terms do not provide for the safe harbor plan. Therefore, you should follow the plan terms and run the ADP test as needed. (Whether there is a Title I issue due to the notice is in the purview of the DOL.)

(such response from the IRS always carry the following caveat, but at least there is a basis for following whatever procedures you take:

The answers reflected in this presentation are the ASPPA representatives’ interpretation of the IRS officials’ responses, and are not direct quotes. They are intended to reflect as accurately as possible the statements made by the government representatives. This material does not represent the official position of the Internal Revenue Service, the Treasury Department, or any other government agency; nor has it been reviewed or approved by the Service or the Treasury.