Loans and a Safe Harbor plan

[52626]

The employer currently has a safe harbor plan ( and will be safe harbor for 2014). In addtion the plan offers participant loans.

The loans are getting out of control, but not to the point where the Plan Sponsor wants to remove them.

the Plan Sponsor is considering limiting one loan outstanding at a time. Does this change in the loan policy need to be implemented before 1/1/2014, or can this procedure be changed durnig the 2014 plan year. We are not amended the plan to add or remove a feature, only modifying the current loan procedures.

thanks

[cpc0506]

Announcement 2007-59 provides that a safe harbor plan can be amended mid-year only with regard to the following:

1. Qualified Roth contributions,
2. Hardship withdrawals,
3. Mid-year amendments to become a safe harbor plan using non-elective contributions, and
4. Mid-year amendments to suspend or reduce safe harbor matching contributions.

There are no other amendments permitted. So if a Safe Harbor plan wants to change a loan feature, it will have to wait until next year.

[BG5150]

Is changing the loan program an amendment? Or is it more of an administrative procedures thing?

I know all participants must get SPDs/SMMs, but who has to get the loan program? Everyone, or just people who ask for it?

[Kevin C]

Announcement 2007-59 provides that a safe harbor plan can be amended mid-year only with regard to the following:

1. Qualified Roth contributions,

2. Hardship withdrawals,

3. Mid-year amendments to become a safe harbor plan using non-elective contributions, and

4. Mid-year amendments to suspend or reduce safe harbor matching contributions.

There are no other amendments permitted. So if a Safe Harbor plan wants to change a loan feature, it will have to wait until next year.

No, it does not say those are the only mid-year amendments that can be made. It merely says those amendments can be made mid-year. Silly me, I thought the 2012 ASPPA annual conference would change things. Here is my last rant on the subject.

http://benefitslink.com/boards/index.php?/topic/53930-amendment-to-safe-harbor-plan/?p=234128

post #12 if the link doesn't take you there.

[BG5150]

Silly me, I thought the 2012 ASPPA annual conference would change things.

Maybe the get together in a couple of weeks will shed some more light.

Maybe.

[52626]

Is changing the loan program an amendment? Or is it more of an administrative procedures thing?

I know all participants must get SPDs/SMMs, but who has to get the loan program? Everyone, or just people who ask for it?

changing the loan progam is an administrative procedure. The loan feature is already in the plan document.

Loan procedure provided to participants requesting the loan.

[Kevin C]

Even if it does, I don't see it changing anything. At the 2012 Annual Conference, the IRS finally budged off of their "we've given published guidance in the Regulations and the Announcement and we are not going to do anything else" position and agreed to bless some examples of amendments that are not considered prohibited amendments in the published guidance. They even said one particular kind of mid-year do-over amendment could be done when I think a literal interpretation of the published guidance would prohibit it. ASPPA speakers also said that their previous stance was being misinterpreted because they never meant you couldn't amend for things like Trustee changes and address changes, etc. But, we are still getting people claiming there is an absolute prohibition of amendments to safe harbor plans mid-year, except for the 4 exceptions listed in the published guidance.

To me, the regulations clearly state what plan provisions are not allowed to be amended mid-year. It probably takes a few times through it to digest it, but it's there in 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1).

[Kevin C]

Unfortunately, it is going to get worse and not better. ASPPA released a new comment letter to the IRS today. A link to the letter is below. I haven't been able to decide which letter is worse, this one or their previous one. The new one looks like it was written as two separate letters by people with completely opposite opinions, then combined into a single letter. In one place, it has a detailed description of the 1.401(k)-3(e)(1) prohibition on mid-year amendments to plan provisions that satisfy the rules of 1.401(k)-3 and points out this means the regulations contemplate mid-year amendments to non-safe harbor provisions. Then, in another part it says that the published guidance prohibits virtually all mid-year amendments of any kind to safe harbor plans. That last part is a new one on me because they have been claiming the supposed near total prohibition comes from consistent informal IRS comments at conferences. Of course, they have claimed repeatedly that it was said by the IRS at the 2011 annual conference and it was not.

Then, they go on to recommend that the standard for allowable mid-year amendments be amendments that would not change language in the safe harbor notice. The content requirement for the notice covers many plan provisions that do not have to satisfy requirements of 1.401(k)-3 or 1.401(m)-3, so I don't see this request as being much different than saying no amendments at all. They do request a few exceptions, including mid-year amendments that do not affect the operation of the plan such as address and phone number changes. After the statements at the 2012 annual conference that they never said amendments like address and phone number changes couldn't be made, I find it surprising they would now ask the IRS to say they can be done. And, yes, they ask again for a list of allowable amendments.

It would be a heck of a lot better for all of us if they would ask the IRS to confirm what kinds of amendments are prohibited.

http://www.asppa.org/Document-Vault/PDFs/GAC/2013/101713comm.aspx

[Bird]

It would be a heck of a lot better for all of us if they would ask the IRS to confirm what kinds of amendments are prohibited.

Or just don't ask. The grayness isn't all that disturbing to me.

Thanks for the analysis of the letter; much appreciated.