Safe Harbor Match Calculation

[52626]

The plan document currently states the safe harbor match is made on a payroll basis.

The employer would like to change this to an annual basis.

Can the plan be amended in midyear to allow with this change

[Tom Poje]

at the ASPPA Conferences the IRS has frowned upon making changes to safe harbor plans, though at the last conference they backed off a little from the 'absolutely not' concept.

if a match is based on a payroll basis then it has to be deposited by the quarter following, so 'technically' you don't have to make a deposit until 12/31 once you hit the mid year point and if that is all you are trying to accomplish then it becaomes a moot point.

However, a payroll match method generally does not involve true-ups at the end of the year (for someone who switches the deferral rate) so I would say you have a problem if you have no true up because when looked at over the whole year the rate of match could be different for some people if you try to switch mid year, and that clearly violates the sfae harbor rules. so if you are trying to switch entirley, you may have issues.

By the way, there is nothing wrong with having an 'annual' match, but making monthly or even weekly deposits and truing up at the end of the year - at least not that I am aware of.

[52626]

the discussion can up because several participants defer the maximum early in the year and do get the maximum match. Several particiapnts will hit the 402(g) limit by 3/15 and under the terms of the plan they would not receive a match allocation after 3/15. The employer has decided, this was not fail, so they wanted to change from a match being made on a payroll basis to an annual match. They would continue to match each payroll period, but true up at the end of the plan. I was unsure if this change from payroll to annual could be accomplished in 2013 or if the amendment needed to be wait until the 2014 plan year.

[401king]

the discussion can up because several participants defer the maximum early in the year and do get the maximum match.

This is kind of way the "no changes" rule is in place. The majority of changes sponsors want to make, in general, will only benefits HCEs/Owners (of course, not always). In this case, those who can afford to contribute early in the year are probably HCEs; an amendment like this would definitely benefit those HCEs. An easy solution would have been to recommend that the participant spread their deferrals throughout the year, but it may be too late for that now. Now you'll just have to point out the section in the SPD where it informed the employees of when the match is calculated.

Adding a True-Up provision mid-year to a Safe Harbor plan is a no-go, if you want to truly go by the book.

[Tom Poje]

so it boils down to:

I want to be able to defer the max on day 1 (and take advantage of having an investment for the full year), and also get the max match, but I don't want to true up someone who started the year at 0, but deceide to defer later on - oh, and also get a free ride ride on the ADP test, and possibly top heavy. that smells bad, as 401king points out, the concept really only benefits HCEs, and is probably why the IRS frowns upon making changes.

if the plan had been in existence for a few years I feel even less 'sympathy'. It is simply a known fact you lose out on the match if you hit the defer limit early in the year. it is simply the way things work.

ultimately, the regs say you issue a notice once and only once.

now you want to change things (from payroll (no true up) to annual, with a true up.

unless they change the regs to say "and issue a new notice if changes are made" I'm not sure what you can do.

(and please don't interpret such comments as to whether I agree or disagree with the way things work, but it is what the regs say at this time)

[K2retire]

We've been hearing that on audit, clients who don't provide a true up are being told that their SH match doesn't follow the formula in their document, even if the document clearly spells out no true up. Our document is silent on the use of true ups, but we've been advising clients to do it.