Mid-Year Termination of Safe-Harbor Nonelective Contribution Plan

[Guest gaham]

I have a plan that satisfies safe-harbor by employer nonelective contributions. Due to a reorganization of the employer next year it is looking like the plan will need to terminate during the year next year and not at the end of the year. It is clear that we could not qualify the mid-year termination as a substantial business hardship and it is very uncertain whether the transaction would fit under 410(b)(6)©. As I read the regs and the proposed regs, a safe-harbor nonelective contribution plan cannot terminate mid-year unless it is due to substantial business hardship or 410(b)(6)©. This is not the case if we satisfied safe-harbor via matching contributions. See 1.401(k)-3(g). This makes no sense but I don't read the regs any other way. Does anyone have any thoughts on my ability to do this or on alternative approaches? Thanks.

[Lou S.]

Issue a maybe notice and if the reorganazation goes through be subject to testing, if it doesn't you can be safe harbor for 2012. That's one option that may work for you.