Safe Harbor Plans

[Guest Golden Girl]

This might not be the right forum for this question but here goes.

Client is participating company in large multiple-ER 401k plan with 3% safe harbor.

They want to move away from the MEP mid-year and set up their own safe harbor 401k plan.

I realize the 3% SHNEC to the MEP plan cannot be stopped mid-year and they cannot amend and restate onto their own plan mid-year.

But it seems there would be some way to accomplish this since no one will lose out on anything by adoptiong new plan mid-year. I have read all the rules and my head hurts.

Would this work:

1. Freeze 401k contribtions to MEP 3/31/13 but make 3% SHNEC to the MEP for all 2013 pay at the end of 2013. Keep assets in MEP plan through 12/3/13.

2. Set up new 401k SH plan. Start making 401k to new plan 4/1/13 and also make 3% of pay SHNEC to new plan (so total of 6% of pay for year combined between both safe harbor plans)

3. Merge MEP 401k assets into new plan on 12/31/13

Would this work?

HELP!!

[ETA Consulting LLC]

I don't think that would work. One of the requirements for starting a Safe Harbor 401(k) during a plan year is that no one must be currently participating in a deferral arrangement for that year. Those employees are already eligible and deferring into another 401(k) arrangement.

Good Luck!

[Tom Poje]

of course there are no guidelines, the regs simply say 'reserved' for how to handle mergers, acquisitions, and the like.

so I think you make a good faith effort.

While the people are participating in a deferral arrangement, it is already a safe harbor, so you are merely going from one platform to another and continuing the safe harbor.

whether the following argument would work in the eyes of the IRS is unclear.

you have a MEP which consists of safe harbor A + B + C + D + E

you want to pull apart the Mep and end up with

A + B + C + D safe harbor

and E safe harbor on its own

since the MEP tests nondiscrim as if each employer was a seperate plan it is almost as if you already have

each company with its own separate plan anyway. you are only switching from one document to another, so to speak. if nothing else changed then you haven't really even 'amended' the plan

at the 2013 ASPPA Conference Q and A 38 the IRS indicated you could change investment platforms and #40 you could change trustees. While such answers do not necessarily reflect an actual position they do offer some hope and guidelines. But who knows how they would handle a situation for which there is nothing in the regs.

Arguably, if the safe harbor contributions were to be deposited in a different plan you had to indicate so in the safe harbor notice, and there is nothing in the regs about issuing a new safe harbor notice to indicate such a change, and that could be a strike against switching things.

Personally I doubt the IRS would have a problem if nothing else changed, but then I'm not the IRS and I've been wrong on stuff before. But again, in light of the fact the regs are simply 'reserved' for cases of mergers, acquisitions and stuff I doubt they could/would do anything if everything else stayed the same.

[Guest 401kbee]

Is the MEP in conjunction to a PEO?