safe Harbor Non-Elective contributions

[mphs77]

If the Employer hands out the annual Safe Harbor Notice (detailing the 3% safe harbor contribution for the year) to only select Particpants and not all participants, has the required notification been satisfied? Would the contribution be due for all possible participants or only for those who received it?

Thanks

Stan

[12AX7]

It appears the notice requirment was not met if it did not go to all eligible employees for the year. The SH contribution is still due to all eligible employees, regardless of whom may not have received the notice. I am not addressing correction of the notice failure in this reply, because I'm not sure how exactly to do this. I do however recall at an ASPPA conference that the IRS may have mentioned to provide the notice when the failure was discovered, but I'm just relying on memory. Perhaps Tom or Quirky can find that info quicker than I can at this point.

[J Simmons]

If the Employer hands out the annual Safe Harbor Notice (detailing the 3% safe harbor contribution for the year) to only select Particpants and not all participants, has the required notification been satisfied? Would the contribution be due for all possible participants or only for those who received it?

Thanks

Stan

The contribution would be due for all eligible employees, even if they did not get a notice.

The notice failure means that the plan is not 401k safe harbored for the year. So even though the 3% of pay is a required contribution per plan and notice terms, the plan is subject to ADP and ACP testing for the plan year.

[Tom Poje]

my understanding is the plan is still a safe harbor, you have an operational failure, a failure to follow the terms of the document which require the issuance of a safe harbor notice.

This is based on IRS comments at the 2004 ASPPA Conference q and A 16:

Assume a calendar year safe harbor 401(k) plan with a 3%

nonelective contribution. The 3% safe harbor contribution is “hard

wired” into the plan document. For the year beginning 1/1/2004, no

safe harbor notice is given to the plan participants by the required

date. Is the result of no notice being given that (a) the plan must

perform 401(k) testing for 2004 and (b) the plan sponsor must still

contribute 3% for everyone?

A: No; You have an operational defect which should be corrected

under EPCRS. This will be additionally discussed from the podium.

the IRS seems to have further supported this postion in its The Fix is In: Common Plan Mistakes

(This is much more recent than the 2004 ASPPA Conference)

see http://www.irs.gov/retirement/article/0,,id=200386,00.html

in particular.

I seem to recall an Old ERISA Outline Book (years ago), when safe harbors first came out indicated the plan was not a safe harbor and tested needed to be done, but I'm pretty sure they changed that portion of the book.

[ESOP Guy]

I just went through this with a client. Tom is correct. There is a correction method. In the case of the client I worked with there had been an employee education meeting before the year started. Everyone was putting in at least a 5% 401(k) contriubtion thus will get the full S.H. match. The correction appeared to be give the notice to the people who didn't get it.

It was still a safe harbor plan for 2011 is our understanding.

[J Simmons]

my understanding is the plan is still a safe harbor, you have an operational failure, a failure to follow the terms of the document which require the issuance of a safe harbor notice.

This is based on IRS comments at the 2004 ASPPA Conference q and A 16:

Assume a calendar year safe harbor 401(k) plan with a 3%

nonelective contribution. The 3% safe harbor contribution is "hard

wired" into the plan document. For the year beginning 1/1/2004, no

safe harbor notice is given to the plan participants by the required

date. Is the result of no notice being given that (a) the plan must

perform 401(k) testing for 2004 and (b) the plan sponsor must still

contribute 3% for everyone?

A: No; You have an operational defect which should be corrected

under EPCRS. This will be additionally discussed from the podium.

the IRS seems to have further supported this postion in its The Fix is In: Common Plan Mistakes

(This is much more recent than the 2004 ASPPA Conference)

see http://www.irs.gov/retirement/article/0,,id=200386,00.html

in particular.

I seem to recall an Old ERISA Outline Book (years ago), when safe harbors first came out indicated the plan was not a safe harbor and tested needed to be done, but I'm pretty sure they changed that portion of the book.

Hi, Tom,

FYI. I've been dealing with an audit the last two years of this issue and run all these sources and arguments, including the irs.gov website Rainbow Company example passed the IRS auditors. They're having none of it. They've dug their heels in at insisting on the 3% of pay, and ADP/ACP testing.

[Tom Poje]

seeing how things operate, that wouldn't surprise me a bit. you can't win no matter what you do.

or maybe its the difference between self-correcting before an audit and being under an actual audit.

[12AX7]

How does the IRS discover during the audit that the SH Notice was not distributed? All I've ever had to do was show a copy to the examiner, if requested.