safe harbor match cessation

[pmacduff]

ok - I think I know the answer but want to double check.

here is the situation:

Mutliple Employer Plan; calendar year

Allows for Employers to choose safe harbor match to pass 401k testing

Plan uses prior year testing for non safe harbor Employers

Safe harbor Employer ceases safe harbor match as of 04/30/2011 with proper 30 day notice to participant, participant didn't defer in 2010 making the prior year NHCE 0%.

When the end of 2011 arrives we know this Employer will be subject to 401k testing and since the Plan uses prior year testing that will mean a refund of all deferrals for the owner on the ADP test side.

Does he get to keep his safe harbor match as long as the ACP portion passes?

[John Feldt ERPA CPC QPA]

In order to properly exit the safe harbor mid-year, you are required to adopt current year testing for the year in which the safe harbor exit occurs - you cannot use prior-year for testing.

[pmacduff]

sorry - my bad - you are correct and the plan document states that fact.

In this instance, that is actually better for the Employer because his participant is contributing 15%.

[QNPG]

ok - I think I know the answer but want to double check.

here is the situation:

Mutliple Employer Plan; calendar year

Allows for Employers to choose safe harbor match to pass 401k testing

Plan uses prior year testing for non safe harbor Employers

Safe harbor Employer ceases safe harbor match as of 04/30/2011 with proper 30 day notice to participant, participant didn't defer in 2010 making the prior year NHCE 0%.

When the end of 2011 arrives we know this Employer will be subject to 401k testing and since the Plan uses prior year testing that will mean a refund of all deferrals for the owner on the ADP test side.

Does he get to keep his safe harbor match as long as the ACP portion passes?

For plan years where the ADP/ACP safe harbor is removed, the plan is required to be tested using the Current Year testing method. The NHCE ADR/ACR would be determined using current year %s.