Amendment to Safe Harbor Plan

[msmith]

We know that there are limited amendments that can be made mid-plan year. Any thought on this situation?

Safe Harbor, with the "maybe" 3% nonelective contribution.

Profit Sharing allocation conditions require last day employment.

The Safe Harbor Notice is given 30 days before the beginning of the next plan year stating the Employer "might" contribute the 3% safe harbor.

A follow-up notice is given 30 days before the plan year end stating no safe harbor.

Question - could the Employer amend the Profit Sharing allocation formula before the end of the plan year?

[John Feldt ERPA CPC QPA]

Yes.

[cpc0506]

I don't agree with John's response. I believe an amendment mid-year takes the safe harbor maybe off the table and the plan cannot be safe harbor in the year of amendment.

[Bird]

I think it's ok. If I remember correctly, they said that mid-year amendments might take a plan out of safe harbor status, and listed a couple that were ok. My take is that the profit sharing formula (probably) isn't in the SH notice, and my sense is that you're not supposed to change something that was in the notice.

[Kevin C]

There are many threads on this topic. If you ask three TPA's, you will get four different opinions. As for me, I agree with John.

http://benefitslink.com/boards/index.php?/topic/52966-safe-harbor-maybe/?p=229609

[John Feldt ERPA CPC QPA]

Under this post's facts, especially consider whether or not the plan is truly safe harbor.

According to the original post, the supplemental notice was given 30 days before the end of the year saying that the plan will NOT provide the 3% SH contribution. Thus, no notice was actually required since the sponsor decided not to make the plan safe harbor for the year by making the contribution. So, if the plan is not safe harbor (no 3% contribution), I see no reason for the plan to be restricted from certain amendments.

[BG5150]

So, you can say, "we might be SH for 2013" (back in Decemeber '12). And then change the PS allocation sometime in 2013 as long as the ER will send out the Dec '13 notice saying "we're not SH for 2013"?

But what if they want to actually be SH for '13?

The OP is a little confusing. It seems like the year in question is over, but it is asking if the plan can me amended mid-year. Which year?

[John Feldt ERPA CPC QPA]

So, you can say, "we might be SH for 2013" (back in Decemeber '12). And then change the PS allocation sometime in 2013 as long as the ER will send out the Dec '13 notice saying "we're not SH for 2013"?

But what if they want to actually be SH for '13?

The OP is a little confusing. It seems like the year in question is over, but it is asking if the plan can me amended mid-year. Which year?

No, under the "maybe" provisions, assuming a "maybe" notice was given timely before the beginning of the plan year, the plan does not actually become safe harbor until the supplemental notice is later provided saying the employer WILL contribute for the plan year (notifying participants of this at least 30 days before the last day of the plan year). However, the employer needs to be careful regarding plan amendments during the year, it could prevent the plan from opting into safe harbor for the plan year.

[Kevin C]

I'll probably regret this, but what is the basis for saying an amendment prior to mid-year adoption of the 3% SHNEC prevents you from adopting SH? The mid-year amendment prohibition in the regs says:

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. ...

If you have not yet amended for the 3% SH as allowed by paragraph (f), how does the plan contain any provisions that satisfy the rules of 1.401(k)-3, which are the provisions you are prohibited from changing mid-year?

As for the OP, I get the same answer regardless of the plan's SH status. I see nothing in either 1.401(k)-3 or 1.401(m)-3 that contains a rule that the provisions specifying the profit sharing allocation method must satisfy.

[PensionPro]

As per ASPPA letter sent to IRS in June 2012 amending a SH plan's allocation formula for non elective contributions is questionable and risky with respect to the plan's safe harbor status.

From page 2: "When asked at various forums over the last few years about the ability to make mid-year changes other than those listed in Announcement 2007-59, the IRS has responded by referring to Announcement 2007-59 and the specific amendments allowed as the only changes that can be made to a safe harbor 401(k) plan mid-year."

From page 3: "Plan modifications that should be permitted to be made mid-year because they will not affect a plan's safe harbour include ... (3) altering the allocation method for nonelective contributions other than the safe harbour contributions (while protecting benefits already accrued) ..."

Theory aside, until IRS issues specific guidance are we not stuck with the risk of IRS enforcement based on its interpretation? As far as OP's question it would be okay to amend the plan's allocation formula AFTER giving a supplemental notice stating the plan is not safe harbor IMO.

ASPPA.pdf

[cpc0506]

PensionPro has provided proof "As per ASPPA letter sent to IRS in June 2012 amending a SH plan's allocation formula for non elective contributions is questionable and risky with respect to the plan's safe harbor status."

I would wait until next year.

[Kevin C]

From page 2: "When asked at various forums over the last few years about the ability to make mid-year changes other than those listed in Announcement 2007-59, the IRS has responded by referring to Announcement 2007-59 and the specific amendments allowed as the only changes that can be made to a safe harbor 401(k) plan mid-year."

There is one problem with that. The IRS has not made that statement at a conference. I previously challenged anyone who thinks they have to provide detail as to when and what was said by the IRS representative, but no one responded. I've seen several claims that it was said at by the IRS at the 2011 ASPPA annual conference. I was there and the IRS representatives said no such thing. I have the recording to prove it. If you do a search you should find my old post where I transcribed what the IRS actually said. Ilene Ferenczy made a brief comment that could be interpreted along those lines if you wanted to, but she is not with the IRS. Other ASPPA speakers have made that claim, but none of them are IRS officials.

From other discussions with a frequent ASPPA speaker, the IRS may very well have said something along those lines in private meetings with ASPPA. But that is not what ASPPA is claiming. They are claiming the IRS has been saying that consistently at all conferences. If the IRS really said that repeatedly, it should be very simple for someone to provide a recording or transcript where the IRS actually said it.

As several of us have pointed out in discussions here, a total prohibition of amendments mid-year to a safe harbor plan is absurd. Likewise, I think another claim that if it is in the safe harbor notice, it can't be changed mid-year is absurd. It has been pointed out that, among other things, they were saying that a Trustee change, plan sponsor name change, address or phone number change could not be made to the document mid-year. Now that the IRS has informally added some new situations where they are willing to say specific amendments can be done (2012 ASPPA annual conference) a couple of ASPPA speakers proclaimed that of course, when they said absolutely no mid-year amendments to SH plans, they didn't really mean you couldn't change things like Trustees or addresses and to think otherwise was being ridiculous.

That ASPPA letter also says there is a lack of formal guidance. That is nonsense. There is very specific guidance in the regulations. ASPPA wants a list of all of the amendments that are allowed. What the regulations have is a list of all of the amendments that are prohibited. Except for listed exceptions, you can not amend any provision that satisfies a rule in that section of the regulations. All you have to do is go through 1.401(k)-3 and 1.401(m)-3 to see what rules apply to plan provisions and you have a list of provisions that the regs say can not be amended mid-year. Why in the world would anyone ask the IRS to make a list of every amendment that can be made? I would say what I really think about ASPPA's letter, but I was raised better than that.

I'll get off the soapbox now.

[msmith]

_{Thanks to everyone for their constructive thoughts.}