Terminating a SH Plan

[austin3515]

Does a 30 day notice period apply to terminating safe harbor plans under mergers or business hardship (i.e., under bullet point ii below). The 30 day notice requirement arises from the reference in (i) that the requirements of paragrpah (g) are satsifed. So it seems to me that when temrinating a plan under mergers and/or business hardship, no 30 day notice is required (whether it's a SHMAC or a SHNEC). Does anyone agree/disagree?

(i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor matching contributions, other than the requirement that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections; or

(ii) The plan termination is in connection with a transaction described in section 410(b)(6)© or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(d)

[Belgarath]

FWIW - Disagree. Just because there is a special dispensation allowing reduction/elimination of the safe harbor contribution requirement doesn't mean the notice requirements are changed. So I read the regs as still requiring the advance notice.

[Kevin C]

Does a 30 day notice period apply to terminating safe harbor plans under mergers or business hardship (i.e., under bullet point ii below). The 30 day notice requirement arises from the reference in (i) that the requirements of paragrpah (g) are satsifed. So it seems to me that when temrinating a plan under mergers and/or business hardship, no 30 day notice is required (whether it's a SHMAC or a SHNEC). Does anyone agree/disagree?

I agree, there is no 30 day advanced notice requirement if the termination is in connection with a 410(b)(6)© transaction or if the sponsor incurs a substantial business hardship.

As Austin notes, the requirement for 30 day advanced notice is in (g) which applies to amendments during the year. If you qualify for a final short plan year under 1.401(k)-3(e)(4)(ii), you are not amending mid-year when you terminate the plan.

The preamble to the final regulations has the following:

The final regulations adopt the exceptions to this 12-month rule that were set forth in the proposed regulations. Thus, a section 401(k) safe harbor plan could have a short plan year in the year the plan terminates, provided the plan termination is in connection with a merger or acquisition involving the employer, or the employer incurs a substantial business hardship comparable to a substantial business hardship described in section 412(d). A section 401(k) safe harbor plan could also have a short plan year in the year the plan terminates (without regard to the reason for the termination or the financial condition of the employer) if the employer makes the safe harbor contributions for the short year, employees are provided notice of the change, and the plan passes the ADP test. In either case, the employer must make the safe harbor contributions through the date of plan termination.

[Belgarath]

Hmmm, now that I read it more carefully, I think you're right, and I was wrong. I agree.

[IRA]

Unless it is too burdensome or you have a need for confidentiality, or a similar circumstance, I would think you would want to tell participants what is going to happen to their plan, regardless of the Internal Revenue Code requirements.

[austin3515]

Certainly.

[IRA]

Certainly.

Yeah Baby!

[Guest Sieve]

I never did--and still do not--understand why 204(h) notice requirements are not extended to PS & 401(k) plans, especially where a match is involved.