Changing Provisions to a Safe Harbor Match plan mid year

[Guest Brenda Schachle]

Once the Safe Harbor Notice goes out for 2012 then the plan provisions as stated must remain in place or you lose the safe harbor pass on ADP/ACP and top heavy, right? I have an advisor who wants to look at amending a safe harbor plan document in February and "re-disclosing" the new provisions but I'm telling him that this will blow up the safe harbor and make the plan subject to testing. Where can I find documentation on this? Whitepaper?

[ETA Consulting LLC]

It may be in the Basic Plan Document. We know that the IRC Section is 401(k)(12). Interesting, that advisors typically know what they want to hear and will continue to push the issue. Remember, that doesn't make them "bad people", but they do get a lot of mis-information.

Good Luck!

[Kevin C]

The prohibitions on mid-year amendments to safe harbor plans are in 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1). The IRS also published Announcement 2007-59 with a couple of examples of changes that can be made. If you ask 4 people in this business, you will probably get 5 different interpretations. There have been a number of discussions here over the past few years. A search here might be helpful.

If the advisor wants to amend in February to change a provision that satisfies a requirement of 1.401(k)-3 or 1.401(m)-3, the regulation cites above are clear that kind of change can not be made. But, the consequence for an improper amendment isn't just blowing the safe harbor. I read the regs as saying the plan won't satisfy 401(k) or 401(m), which means the plan would technically be disqualified, not just that you are no longer safe harbor.

[QDROphile]

"Interesting, that advisors typically know what they want to hear and will continue to push the issue. Remember, that doesn't make them "bad people", but they do get a lot of mis-information."

It does make them bad advisors, and that should be taken into account in retaining them. it also shuld be taken into account for who should be the one to justify and support a position taken when the validity is questioned.

[Guest Brenda Schachle]

"Interesting, that advisors typically know what they want to hear and will continue to push the issue. Remember, that doesn't make them "bad people", but they do get a lot of mis-information."

It does make them bad advisors, and that should be taken into account in retaining them. it also shuld be taken into account for who should be the one to justify and support a position taken when the validity is questioned.

In defense of the advisor, at least he asked! He also posed the question to his "internal folks" --who should know compliance and are there to help him get these things right --and they do not understand why there is a problem with changing provisions mid-year on a safe harbor plan.