SH Plan Mid Year Amendments

[AJ North]

I have a SH plan that allocates a 3% QNEC and a fixed matching contribution of 100% of the first 6% deferred. The plan year is calendar. The plan wants to eliminate the fixed match, but will continue to contribute the 3% SH QNEC.

My question is will the plan still be SH with regard to the ADP test due to the fact the 3% SH QNEC will continue to be contributed. Or will the plan be subject to both the ADP/ACP test because the the plan was amended mid-year?

[Kevin C]

It depends on how you interpret the phrase "safe harbor match" in 1.401(k)-3(g) and 1.401(m)-3(h). Based on the wording in the last sentence of both 1.401(k)-3(a)(3) and 1.401(m)-3(a)(3), I don't think suspending your match mid-year will be allowed.

1.401(k)-3(a)(3)Requirements applicable to safe harbor contributions.—

Pursuant to sections 401(k)(12)(E)(ii) and 401(k)(13)(D)(iv), the safe harbor contribution requirement of paragraph (b) or © of this section and §1.401(k)-3(k) must be satisfied without regard to section 401(l). The contributions made under paragraphs (b) and © of this section and §1.401(k)-3(k) are referred to as safe harbor nonelective contributions and safe harbor matching contributions.

If it is a permissible reduction or suspension of safe harbor matching contributions, you will be required to satisfy ADP and ACP testing as part of the rules.

If it is not a premissible reduction or suspension of safe harbor matching contributions, you will disqualify the plan with the amendment. See 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1)

1.401(k)-3(e)Plan year requirement

(1)General rule.—

Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of sections 401(k)(12), 401(k)(13), and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of §1.401(k)-1(b) if it is amended to change such provisions for that plan year. Moreover, if, as described under paragraph (h)(4) of this section, safe harbor matching or nonelective contributions will be made to another plan for a plan year, provisions under that other plan specifying that the safe harbor contributions will be made and providing that the contributions will be QNECs or QMACs must also be adopted before the first day of that plan year.