Safe Harbor Contribution

[retbenser]

Given: 401(k) Safe Harbor Profit Sharing Plan

Given: Owner has no 401(k) deferral and no personal PSP contribution

Question #1: Does the owner still have to pay the 3% safe harbor to NHCE?

Question #2: If yes, how can suspend the safe harbor contribution (since you will pass the ADP test anyway)?

Thanks for all responses.

[Lou S.]

Q1, yes it is required by plan document.

Q2, amend the plan before 1st day of next plan year to remove for upcoming year. Either take out SH altogether, remove for just HCEs, go to maybe notice, or switch to safe harbor match.

But once the year starts with a 3% SH locked in, it is near impossible to get out of it for that year. I think you can terminate the plan altogether and lock in the liability only through date of termination and if the employer is going through bankruptcy you may be able to get out of it for the year.

[retbenser]

Q1, yes it is required by plan document.

Q2, amend the plan before 1st day of next plan year to remove for upcoming year. Either take out SH altogether, remove for just HCEs, go to maybe notice, or switch to safe harbor match.

But once the year starts with a 3% SH locked in, it is near impossible to get out of it for that year. I think you can terminate the plan altogether and lock in the liability only through date of termination and if the employer is going through bankruptcy you may be able to get out of it for the year.

Thanks

[BG5150]

Remember, the SH isn't a "just in case" provision. It was an amendment to the plan to provide it. Failure to do so results in an operational failure.

If you want somewhat of a just in case provision, you could go with a wait and see (some times called contingent or SH with follow-up) non-elective. This way, you could do mid-year testing, and if you are passing handily, you could just send out the "we're not gonna do SH this year" notice.