Rescinding Safe Harbor 401(k)

[Lori H]

a plan rescinded their Safe Harbor in 2009 after amending to incorporate safe harbor effective 1.1.09. prior to 2009, they utilized "Prior Year" testing method. It is my understanding upon rescinding that they default to "Current Year" testing method. They can not go back to "Prior Year" can they for lets say 2010 plan year?

[Tom Poje]

the default for an ADP test is prior year. you can always amend to current year, and once amended must be current year for at least 5 years.

if a plan is a safe harbor plan, it is deemed to be current year. (This would only make sense because a safeharbor contribution is a QNEC or a QMAC, and its darn near impossible to make such an animal using prior year testing)

now, while I haven't seen anything in writing, my logic would be if the plan has been safe harbor for 5 years, then it has been current year for 5 years, so you should be able to amend to prior year (though you can't include the prior year safe harbor, because that would be double counting a QNEC)

[D Lewis]

The OP said that they added SH in 2009 and then rescinded it. The OP said that prior to 2009, the plan was tested on a prior year basis.

I think that means it was changed to current year 1/1/2009, and they must wait 5 years to change back to prior year.

[Lori H]

The OP said that they added SH in 2009 and then rescinded it. The OP said that prior to 2009, the plan was tested on a prior year basis.

I think that means it was changed to current year 1/1/2009, and they must wait 5 years to change back to prior year.

correct prior to 2009 it was Prior Year. however, when Safe Harbor was discontinued in 2009, an election was not made as to Prior Year/Current Year testing method. Company wants to use Prior Year for 2010 based on 2009 ADP.

[BG5150]

To me, as long as you are not re-using the NHCE data 2 years in a row, you should be okay.

[Kevin C]

If the SH contribution was stopped mid-year in 2009, they are required to use the current year method for 2009. See 1.401(k)-3(g)(iv). As previously mentioned, they would have to stay with current year testing for 5 years.

When was the amendment stopping the SH adopted and when was it effective?

[Lori H]

If the SH contribution was stopped mid-year in 2009, they are required to use the current year method for 2009. See 1.401(k)-3(g)(iv). As previously mentioned, they would have to stay with current year testing for 5 years.

When was the amendment stopping the SH adopted and when was it effective?

amendment was adopted Jan 21 and effective Feb 22. they realized that business was down and they would not be able to fund it early on. in 2008 they used Prior Year method. in 2009 they ADP using Current Year and they want to go back to using Prior Year method.

[Tom Poje]

see 1.401(k)-2© for when a plan can switch from current to prior year

"Because they want to" is not listed among the reasons

[Lori H]

Question then....after they rescinded could they have used Prior Year method in 2009 using 2008 ADP to limit HCE ADP in 2009?

[Kevin C]

No, one of the conditions for being able to stop the SH contribution mid-year is that you must use current year testing for that year. The cite is above.