Add Participating Er to Safe Harbor Plan

[austin3515]

Small 401k plan where one of the owners has an LLC with no employees (other than himself). We want to add the LLC as an adopting employer for the 2013 plan year to maximize the comp for the owner. It is a brand new LLC in 2013, and it would be a controlled group.

Plan is a safe harbor 401k plan. Anyone have a problem with doing this before year end. Let me rephrase because I know a lot of you would not do this. Is there anyone who would do this?

[Lou S.]

New LLC, controlled group, sounds like it would fall into the exception for "business transactions". I haven't looked at them in a while but off the top of my head I don't think I'd have a problem having the LLC adopt the plan.

[austin3515]

Can you point me in the right direction for what you are referring to? I see discussion of the business transaction question in the discontinuing of SH contributions due to plan termination, but nowhere else.

[Tom Poje]

for the sake of the argument, let's suppose the LLC had an additional employee. I wouldn't think you could adopt the safe harbor because the plan year for the group would be less than 3 months. (I don't see where you said it was a brand new LLC). so now it turns out I don't have an additional employee. I don't see how that would make a difference, just because the one person is already in the safe harbor plan. (But then, after all, I am a Grinch)

[BG5150]

(I don't see where you said it was a brand new LLC).

It is a brand new LLC in 2013, and it would be a controlled group.

[Tom Poje]

but when was it new? I thought the issue was that a brand new company that just started could indeed start a safe harbor, but I don't think the regs specified a time frame.

If the LLC had been in existence since July then I doubt that would fly.

[Kevin C]

We have amended to add a participating employer mid-year. Our situation was different, though. A client with a SH 401(k) sold the assets of the company to another company that did not have a plan. The new company adopted the existing plan so the employees were able to continue to participate in the plan.

I don't see any rules in the safe harbor regs that the provisions regarding participating employers must satisfy, so I would probably do it.