restated plan with safe harbor match and ADP/ACP language

[Guest cbclark]

I am new to the board, so please bear with me. We restated a 401(k) plan, filed it with the IRS for a FDL. The plan has a safe harbor match. It includes sections detailing the ADP and ACP nondiscrimination testing rules and procedures. It also contains two specific provisions that say the ADP etc requirements are not applicable for any years that the plan is safe harbor.

The reviewer is demanding that the ADP/ACP language be deleted. First reason cited was that reg. 1.401(k)-1(e)(7) precluded "defaulting" to ADP etc if the safe harbor contribution was not made.

We wrote back that the plan was not defaulting to the ADP etc, and that the plan stated in both ADP and ACP sections that the ADP/ACP provisions were not active unless and until the employer decided to not utilize the SH match in an upcoming year.

Agent wrote back that the language had to be deleted, citing the reg, and stating (this is a quote): "The benefits of the plan must be 'definitely determinable'. Permitting both Safe Harbor and ADP/ACP language in a Safe Harbor 401(K) plan would undermine this requirement."

We have submitted many plans with identical language and never gotten this response. EVER. Is the agent's position even marginally supportable? I used to have a circle on my wall that said "bang head here" and I am thinking I may need to put it back, especially in light of the "definitely determinable" reference. Any suggestions? I don't want to amend if it is unnecessary, and I don't want to push the problem up the food chain to a supervisor, but I am nervous that this agent could make my life miserable. Thanks in advance.

[Guest Not such a bad guy]

I am new to the board, so please bear with me. We restated a 401(k) plan, filed it with the IRS for a FDL. The plan has a safe harbor match. It includes sections detailing the ADP and ACP nondiscrimination testing rules and procedures. It also contains two specific provisions that say the ADP etc requirements are not applicable for any years that the plan is safe harbor.

The reviewer is demanding that the ADP/ACP language be deleted. First reason cited was that reg. 1.401(k)-1(e)(7) precluded "defaulting" to ADP etc if the safe harbor contribution was not made.

We wrote back that the plan was not defaulting to the ADP etc, and that the plan stated in both ADP and ACP sections that the ADP/ACP provisions were not active unless and until the employer decided to not utilize the SH match in an upcoming year.

Agent wrote back that the language had to be deleted, citing the reg, and stating (this is a quote): "The benefits of the plan must be 'definitely determinable'. Permitting both Safe Harbor and ADP/ACP language in a Safe Harbor 401(K) plan would undermine this requirement."

We have submitted many plans with identical language and never gotten this response. EVER. Is the agent's position even marginally supportable? I used to have a circle on my wall that said "bang head here" and I am thinking I may need to put it back, especially in light of the "definitely determinable" reference. Any suggestions? I don't want to amend if it is unnecessary, and I don't want to push the problem up the food chain to a supervisor, but I am nervous that this agent could make my life miserable. Thanks in advance.

This was a big deal a couple of years ago, it sounds like the agent knows what they are talking about, without having firsthand knowledge of the plan doc it is hard to tell, but when you say"until the employer decided to not utilize the SH match in an upcoming year", is this done through amendment election by the employer, if your plan doc is desighned like most there is some language that indicates the testing language will not be applicable unless elected by amendment and proper notice is provided to the particpants, this should be enough to make it definetly determinable. If the plan doc just allows ADP/ACP tesing to be chosen in any year that the plan chooses to not be a safe harbor plan, that is where plans get into trouble, if the plan does have the latter of the two scenarios, send in a proposed amendment that says this section (ADP or ACP testing language) will only be applicable if elected through amendment with proper notice to particpants. Hope that helps.