SHNE Stopped Mid-Year

[Laura Harrington]

Ok, needs some opinions! I'm driving myself crazy trying to decide how to proceed.

1. Scenario #1: Calendar year plan with safe harbor nonelective feature. Amended out of safe harbor noneletive 8/31/2009 as allowed by the proposed regulations.

Participants received an allocation of 3% of their compensation for the period 1/1/2009-8/31/2009. (The $245,000 compensation limit for 2009 was pro-rated for the safe harbor nonelective calculation to $163,333.32.).

No other employer contributions allocated for the plan year.

If I calculate the percentage of plan year compensation (1/1/2009-12/31/2009) that was allocated, participants have non-uniform percentages and would not satisfy the 401(a)(4) safe harbor.

Does the plan need a 401(a)(4) test? Or for purposes of determining if the 401(a)(4) safe harbor was satisfied, do I only consider the percentage that was allocated based on compensation for the period 1/1/2009-8/31/2009, which would produce a uniform allocation?

2. Scenario #2: Same as above except there are profit sharing forfeitures as of 12/31/2009 that the document says are reallocated based on plan year (1/1/2009-12/31/2009) compensation. No accrual requirements on the forfeiture reallocation. The same participants who received the safe harbor nonelective will receive an allocation of approximately 1% of their plan year compensation due to the forfeitures.

Does the plan satisfy the multiple formula safe harbor under 401(a)(4)?

I say yes, if the answer to #1 was that when determining if the allocation of the safe harbor nonelective was uniform we only have to consider compensation from 1/1/2009-8/31/2009.

3. Scenario #3: Same as #2 except the safe harbor nonelective contribution is based on compensation paid for the plan year after the participant's date of entry. A non-highly compensated employee became a participant on 10/1/2009, so he did not receive an allocation of safe harbor nonelective. But he did receive an allocation of the profit sharing forfeitures.

My thought is that in this scenario the multiple formula rule would not be satisfied because both allocations are not available to the same group of non-highly compensated employees.

Any thoughts? Has anyone else dealt with similar situations?

Thanks!

Laura

[Laura Harrington]

48 views and no replies? No one wants to take a stab at this? Or is it because I'm an idiot and am missing something obvious?

[Jim Chad]

Hi Laura:

You have my sympathies. I will give you my opinion, FWIW. But I cannot back it up.

Scenario 1. The SHNEC is a weird creature. I think you would have a uniform allocation using 3% of comp for the period of time the Plan was Safe Harbor.

Scenario 2. I think you would have a multiple formula safe harbor design here. Again, in my NTBHO (never to be humble opinion).

Scenario 3. I don't think this one employee changes your scenario 2.

I am going to be interested to hear what everyone else thinks.