New Safe Harbor Plan

[Guest elang]

Client would like to adopt a new 401(k) plan to be effective 1/1/11. Ideal plan design for them is safe harbor. Is it too late to adopt a safe harbor plan for 2011?

Thanks

[John Feldt ERPA CPC QPA]

Soon it will be too late for 2012.

For 2011 it is too late unless they provided a safe harbor "maybe" notice within a reasonable period of time before the first day of the plan year (30 days is deemed reasonable). If they did this and they want to be safe hrabor in 2011, then an amendment must be signed by December 1, 2011 and a supplemental notice must be given out by December 1, 2011. That's December 1, not December 2 - this deadline is 30 days before the END of the plan year.

edit: sorry, these comments are meant for an existing plan, wanting to add safe harbor.

[Kevin C]

Unless you are talking about a newly established company, yes, it is too late for a 2011 calendar year SH plan. The initial plan year must be at least 3 months. For a PS plan effective 1/1/2011, the CODA must be added at least 3 months before the end of the year. See 1.401(k)-3(e)(2).

At this point, they can do PS or regular 401(k) for 2011 and add the SH 1/1/2012. Or, they can set a SH plan up using a non-calendar year. For example 11/1 - 10/31.

[rcline46]

Did everyone forget about the prior year testing assumed 3% for NCE, giving 5% to HCE? Although not quite as good as a SH, its better than nothing!

Also, a 3% QNEC and current year testing would get them 5%, but the QNEC cannot be used for a4 testing.

One should always remember to consult with an experienced TPA. SH has only be around since 1998 so get with someone who had been around a while and knows how ALL of the rules work.

[Guest elang]

Unless you are talking about a newly established company, yes, it is too late for a 2011 calendar year SH plan. The initial plan year must be at least 3 months. For a PS plan effective 1/1/2011, the CODA must be added at least 3 months before the end of the year. See 1.401(k)-3(e)(2).

At this point, they can do PS or regular 401(k) for 2011 and add the SH 1/1/2012. Or, they can set a SH plan up using a non-calendar year. For example 11/1 - 10/31.

It is a 2 year old business, but will be a new plan. Along the lines of using a non-calendar plan year, let’s say we wrote a Safe Harbor 401(k) with an 11/1 – 10/31 plan year; could we also write an additional PSP with a calendar plan year so that they can use the PS deduction in 2011?

[gregburst]

Did everyone forget about the prior year testing assumed 3% for NCE, giving 5% to HCE? Although not quite as good as a SH, its better than nothing!

Sometimes it is "as good as" safe harbor. If owner earns $245,000 and spouse earns $100, then owner can defer $16,500. The HCE average ADP will only be 3.37%.

And if the company declares a 148% match, then the owner can get a $24,500 match. The HCE average ACP will be 5% exactly.

[PFranckowiak]

Okay - what about a spin off. Company was part of a controlled group - but is no longer. Splitting off into their own plan - identical.

Calendar year end. New Plan will be SH - old plan - not. Old plan had only two EE's, 1 in each company. Now one each, but the new plan ER will be hiring some people in 2012 - so notice won't be late, except for the owner.

thanks

Pat

[rcline46]

1 ee means no worry about failing ADP or ACP, so no need for SH in 2011! Plus may be limited due to contributions in the original plan. Using prior year testing will get you through 2012 at least even with immediate eligiblity, though 2013 if new hire does not come in until 2013.