amendment to a SH plan

[Guest plan admin questions]

Can you make any type of amendment to a safe harbor plan mid year? For instance, may you amend the hour requirement for a ps contribution, or the definition of an eligible employee?

It seems like a simple question, but our office is in debate whether you can make ANY type of amendment to a safe harbor plan mid-year, even if it has nothing to do with the safe harbor provision.

ETA: What would happen if we did an amendment mid-year to a safe harbor plan? Does it affect the safe harbor status?

thanks in advance!!

[QNPG]

Can you make any type of amendment to a safe harbor plan mid year? For instance, may you amend the hour requirement for a ps contribution, or the definition of an eligible employee?

It seems like a simple question, but our office is in debate whether you can make ANY type of amendment to a safe harbor plan mid-year, even if it has nothing to do with the safe harbor provision.

ETA: What would happen if we did an amendment mid-year to a safe harbor plan? Does it affect the safe harbor status?

thanks in advance!!

There are several conversations on the board about this topic and a few mixed opinions; however, the following seems to be the majority opinion:

IRS Announcement 2007-59 provides that a plan will not fail to satisfy the requirements to be a § 401(k) safe harbor plan merely because of mid-year changes to:

1. implement a qualified Roth contribution program or

2. amend the hardship withdrawals to comply with PPA (allowing hardships if the primary beneficiary of the participant incurs a hardship).

From the 2009 Annual ASPPA Conference:

It is very common to want to restate a safe harbor takeover plan to our document mid-year. We are currently telling clients we cannot make any changes to a SH plan other than adding Roth and expanding hardships, until the beginning of the next plan year. If the change does not affect the CODA portion of the plan (i.e.. the 401 (k) deferrals and the safe harbor contribution) or if it is more generous, is it permissible to make the change mid year?.

Examples:

• add a profit sharing feature • change allocation conditions for the profit sharing formula to eliminate last day requirement • eliminate permitted disparity from a plan with a last day requirement • eliminate all distribution forms except for lump sum? • liberalize eligibility requirements or entry dates?

A- IRS Announcement 2007-59 provides guidance only for mid-year changes to add a Roth deferral feature or hardship withdrawals. Comment was requested on whether additional guidance was needed with respect to other mid-year changes. To date, no further guidance has been issued. Current as of 3/29/2011 .

[Guest plan admin questions]

Thank you so much for this information! It's exactly what we needed!!

[Kevin C]

The mid-year amendment prohibition is in

1.401(k)-3(e)Plan year requirement

(1)General rule.— Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of sections 401(k)(12), 401(k)(13), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of §1.401(k)-1(b) if it is amended to change such provisions for that plan year. Moreover, if, as described under paragraph (h)(4) of this section, safe harbor matching or nonelective contributions will be made to another plan for a plan year, provisions under that other plan specifying that the safe harbor contributions will be made and providing that the contributions will be QNECs or QMACs must also be adopted before the first day of that plan year.

The same rule is in the 401(m) SH regs, too.

Add that to Querky's post and you have all the available guidance. As she mentioned, interpretations vary depending on who you ask.