Safe Harbor 401k Plan

[Guest Dumb & Dumber]

A 401(k) plan is sponsored by a partnership. The partnership is comprised of three seperate corportations. Together everyone is part of an affiliated service group. Only two of the three corporations currently sponsor the plan as adopting employers. Can the 3rd corporation adopt the plan in the middle of the year and make 401(k) deferrals and receive the safe harbor nonelective contribution? The only employee of the 3rd corporation is the owner of that corporation.

[austin3515]

Does that corporation currently have a 401k plan? If so, then it's definitely out (in my opinion). If not, you could probably argue that it is OK, since that company could adopt it's own safe harbor plan.

[Guest Dumb & Dumber]

No that corporation does not currently have a 401(k) plan. The 401(k) plan sponsored by the partnership has 401(k), SH nonelective and profit sharing. I believe at the very least that the corporation can adopt the plan and at least make a profit sharing contribution (within the limits of nondiscrimination testing). I agree that it seems logical that the corporation should not be entitled to the Safe Harbor since the corporation had the option of adopting the plan before the beginning of the year. Regarding the 401(k), I guess the approach would be that the owner of the corporation technically can do 401(k) but since they are not part of the SH group all the 401(k) would have to be returned.

[Guest Dumb & Dumber]

I read your reply a bit too fast and got crossed up in my thinking. You make an interesting point. I will have to research that option.

[austin3515]

To be clear, if the third corporation does not already have a 401k plan, then it could adopt the main plan as an adopting employer. The other option would be to start its own plan. Not sure which option you were leaning towards.

[Guest Dumb & Dumber]

They would adopt the main plan since the plan operation costs would be less than starting a brand new plan.

[12AX7]

I'm with Mr. Powers on this one. I don't recall the regs necessarily prohibiting what they want to do in this situation. If they can adopt their own plan, then why not the existing plan.