New Plan Year to add Safe Harbor

[cpc0506]

Employer A is a Dentist’s Office which acquired another dental practice, Employer B in 2011. They are being operated as two separate businesses. It is now 2013 and Employer A has learned that he needs to either cover Employer B or run the risk of failing coverage.

Now Employer A would like to add a safe harbor plan ASAP. Employer A currently has a calendar year 401k plan.

Are there any options to get a safe harbor plan sooner than 2014?

From my research, in the 2012 EOB, page 11.557 states that an employer might consider changing its plan year for the plan and start using safe harbor for the first 12-month plan year that starts after the amendment. Has anyone done this? What are the consequences/pitfalls of doing this?

[Tom Poje]

one of the consequences, of course, is you end up with an odd plan year, and then a short plan year the following year to get things back on track. (I'm pretty sure you have to have at least one 12 month plna year in such a situation.

If the HCEs are at max comp, then max deferral for 2013 results in 17,500 / 255,000 = 6.86%

so if you have an avg of 1.86% on the NHCEs a 3% QNEC to all would raise the avg to 4.86%, enough to pass testing and works the same as a safe harbor (aside from some possible top heavy issues). of course every situation is different and you may have HCEs not at max comp and that would change an example like that, but it is something to consider if it is worth the hassle to accomplish something for one year..