safe harbor amendment

[Gary]

I used to think that an on-going plan could not amend plan for safe harbor after the start of the plan year.

But if my understanding is correct section 1.401(k)-3(f) provides that the plan can be amended after the first day of plan year to retroactively provide a non elective safe harbor effective as of BOY.

Is that agreed? thanks

[ETA Consulting LLC]

I didn't look it up, but the Safe Harbor Provisions are in section 401(k)(12) of the IRC. It would appear then, that any Regulation pertaining to the Safe Harbor provision would be in a section 1.401(k)(12).

Just a quick thought, because I never heard of what you are suggesting

Good Luck!

[Tom Poje]

the cite you quote from 3(f) refers to the 'maybe safe harbor' rule, which says 30 days before the plan year begins you indicate the plan 'might' be a 3% SHNEC. and then, if it is decided it will be safe harbor, you amend the plan 30 days before the end of the plan year. (Otherwise how could it be a safe harbor since you have no language in the current document?) of course you could never do that with a safe harbor match, because that is directly related to how much one defers, and it's too late after the fact.

but this is different than 'amending' the plan during the year (e.g. to change vesting or change eligibility, etc)

[John Feldt ERPA CPC QPA]

And remember, you can't amend a non-safe harbor 401(k) plan mid-year to add the 3% safe harbor nonelective unless you followed the "maybe" notice requirements by providing the notice within a reasonable period before the beginning of that plan year.

[Gary]

thanks; that was my on-going understanding re: safe harbor after start of plan year.

just got a little off track when I began to think that the reg i cited could apply a post beg of yr safe harbor. as you say that only applies to the maybe notice situation provided before plan year.

i'll go back to the reg and verify the bigger picture context of that section.

thanks.

[imchipbrown]

Just received this in an email..

"We have an employee to add to the 401k who started in March 2011. How do we go about doing that? If he decides not to contribute, does that affect our matching?"

Company had only 3 HCEs (and no NHCEs) in 2011. Straight 401k and Match. Eligibility is one year, semi-annual entry. Can this be amended to Safe-Harbor Matching for 2012? Or even Non-Elective? I think notice would be timely, as entry date would be 7/1/2012.

Plan is calendar but company is 7/1 - 6/30 fiscal. Could I amend the Plan to new year to match the company year and make it Safe Harbor, either match or non-elective?

[Kevin C]

It's too late for a calendar year 2012 SH for an existing 401(k). SH match requires a notice and an amendment before the beginning of the year. 3% NEC requires either an amendment before the beginning of the year or a conditional notice. Both options require the distribution of the SH notice (or conditional notice) a reasonable period before the beginning of the plan year. 1.401(k)-3(e) has the amendment timing rules. The new participant's entry date doesn't change anything mentioned above.

What ADP/ACP testing method are they using? If it is prior year testing, the new NHCE entering 7/1/2012 won't affect the HCE deferrals and match until 2013. SH for 2013 is still an option.

Changing the plan year and going SH starting 7/1/2012 would work, as long as the first SH year is 12 months long.

[imchipbrown]

Thanks for the reply. I had no NHCE's in 2010 or 2011, so wouldn't the prior year NHCE % be 0%?

[Kevin C]

No, there is an exception for the ADP/ACP tests if only HCE's are eligible. With prior year testing, it applies if there were no NHCEs eligible in the prior year.

§1.401(k)-2(a)(1)(ii)HCEs as sole eligible employees.—

If, for the applicable year for determining the ADP of the NHCEs for a plan year, there are no eligible NHCEs (i.e, all of the eligible employees under the cash or deferred arrangement for the applicable year are HCEs), the arrangement is deemed to satisfy the ADP test for the plan year.

The same kind of rule is in the 401(m) regs.

[imchipbrown]

That's certainly an eye-opener! The plan has always used prior-year testing, so the "applicable year" is 2011 for the 2012 "plan year".

So, no testing on 401(k) deferrals or 401(m) match (for 2012).

I assume coverage passes since deferrals and match are available.

I also assume a Top-Heavy contribution may be required if the NHCE makes no deferral, so gets no match.

[Kevin C]

Yes, Yes and Yes. As you have probably noticed, prior year testing is a good idea for an HCE only plan. It gives you time to react if they hire an NHCE. I imagine they will want to be SH for 2013.