QACA changes

[K2retire]

I've recently changed jobs and found myself working on QACA plans for the first time. I think I remember that the change rules are the same as the traditional safe harbor plans, but I'm questioning my memory.

A plan has 2 year eligibility for discretionary contributions (both match and PS) and 1 year eligibility for deferrals and QACA contributions. The client had conversations 8 months ago with consultants from two service providers who understood that they wanted to amend their plan from a 3% non-elective contribution, to an Enhanced Safe Harbor match at 4%, retaining the QACA features. A letter of intent was signed indicating a desire to amend the plan.

Both consultants subsequently left their jobs before action was taken. Based on the letter of intent, a new employee of one of the service providers obtains a second, more detailed letter of instruction from the client and prepares the amendment. The amendment is signed in late December and the QACA notice showing the revised terms is provided to the employer at that time. It is not known if the notice was ever distributed to the employees.

The client now says that they did not want to make this change (despite signing multiple documents indicating otherwise) and wants to know what their options are. Short of destroying the signed amendment and everyone pretending to have never seen it, do they have any options for 2011?

[Guest Sieve]

I would think that you can suspend the 2011 QACA match pursuant to the reg that allows mid-year elimination of a SH match (Treas. Reg. Section 1.401(k)-3(g)), since that reg. is specifically applicable to QACAs (Treas. Reg. Section 1.401(k)-3(a)(2)). But you then no longer would have a QACA.

[K2retire]

But the sole HCE doesn't want to be limited in her deferrals AND they have verbally promised the new hires that they will get a 3% non elective contribution although the document says they aren't eligible for the discretionary non elective until after 2 years.

If only they would learn to read BEFORE they sign things....

[Kevin C]

they have verbally promised the new hires that they will get a 3% non elective contribution although the document says they aren't eligible for the discretionay non elective until after 2 years.

If you are referring to the PS contribution provisions here, they can change this. They can't change any provisions that satisfy the requirements of 1.401(k)-3 and 1.401(m)-3 and remain SH, but that shouldn't affect the PS contribution.

[K2retire]

A new twist -- in a conversation with the client about the fact that their changes to the safe harbor contribution must have been in place before the plan year began she says, "That's why we back dated the amendment in the first place. It wasn't signed until after January 1, 2011." Now what do we do?