Change of Plan Year to Get Safe Harbor

[austin3515]

12/31 plan is very top-heavy. Can I change Plan Year-End to 3/1/12 - 2/28/13 (short plan year from 1/1/12 to 2/28/12), or is that just plain crazy?

[ETA Consulting LLC]

You can; not that it's not plain crazy. You'd have to write out a detailed plan to ensure you account for everything when dealing withe the short plan year created for 1/1 - 2/28. You'd have another short plan year created when you ultimately change it back to a calendar year plan.

No big deal when you have the additional energy to commit to the process.

Good Luck!

[austin3515]

How many years would you remain a calendar year plan before switching back?

[Kevin C]

You can have a 3/1/2013 -12/31/2013 short year to get it back to calendar years. Your first safe harbor plan year needs to be 12 months because you won't qualify for the short plan year exception until the plan has been safe harbor for at least a year. The plan also needs to be safe harbor for the year following the short year. 1.401(k)-3(e)(3).

The question is whether it's worth the trouble.

[Tom Poje]

so its top heavy and to avoid putting in a vested top heavy minimum, you want to go with a safe harbor to become 'top-heavy free' so to speak.

of course, not much is gained if you go 3% safe harbor, in fact you lose ground because its 100% vetsed. in fact, terminees receive as well.

so hopefully you mean a basic match, which could backfire if enough people defer 5%. but then if enough people defer 5% you would probably pass ADP testing anyway.

[austin3515]

Yes, Basic SHM, and participation is extremely low AND there are a LOT of non-key HCE's.

[austin3515]

"The question is whether it's worth the trouble."

Yes Yes Yes Yes Yes!!!!!!! Very much so in this instance.