Safe Harbor Change/Notification

[KevinMc]

A calander year plan currently utilizes the safe harbor non elective plan where they contribute 3% to all eligible participants. They would like to amend the plan to a safe harbor match formula. What type of notification is sent to participants and is there a certain time of year they have to do this? (i.e. 30 days before beginning of next plan year, etc.)

[ETA Consulting LLC]

I think you just answered your own question. The 30 day notice issued before the beginning of the next year would do it.

Good Luck!

[Tom Poje]

the regs say the notice must be given so the participant can make a 'reasonable decision'

30 days is considered to be reasonable. (in other words, if you do 30 days you are certainly safe)

could it be less? yes, as far as I can tell, but then it becomes a facts and circumstances...

[QDROphile]

In concrete terms, the question should be: Was the notice given in time for the individual to decide and implement a deferral election change that will get the individual the maiximum match beginning with the first deferral in the year?

But if that is the question, why would the 3% contribution safe harbor require advance notice? The notice and the contribution should not affect the individual deferral decision, except in the wrong way (Hey! I'm getting a 3% contribution! I don't have to save as much myself!).

And why am I asking for reason when it come to notices?

[Tom Poje]

but that is what the regs say. at the moment, there is no guideline for a late notice, though the IRS has indicated if it is the 3%, then possibly simply issue the notice ASAP.

one such article can be found here:

http://www.firstalliedretirement.com/assets/images/content/newsletters/The%20Big%20Five%20on%20IRS%20Radar,%20Part%203.pdf

If no employees are impacted, and the failure is purely administrative in nature: If the failure to provide notice

did not prevent employees from making an informed timely election to change (or maintain) their elective

contribution to the plan, no corrective contribution is required. The plan, however, needs to implement

procedures to ensure that participants receive notices timely in the future. Document the changes to the

procedures in writing. This is particularly important if the correction does not involve a corrective contribution.

Equally as important is to document why the failure to provide notice did not affect employees.

If the plan contains a non‐elective safe harbor provision, i.e. employees are not likely to be affected in their

salary deferral decisions since their deferrals do not affect the amount of employer contributions: The IRS

does not provide specific guidance in this area. On a few occasions, however, IRS officials have stated that this

type of a failure could be corrected simply by providing the notice late (even if after the beginning of the plan

year) and correcting the administrative procedures to prevent further failures (see above). Bear in mind that, if

at the same time there was a failure to inform participants of their right to make salary deferrals, it is necessary

to correct the missed deferral opportunity failure as described above.

.........................

note: if the plan was a safe harbor match, then probably a make up contribution is due.

but I would agree, the notice in the case of the 3% seems somewhat silly. as it shouldn't really effect a person's decision to defer.

recall the way the regs were written, they had language how to stop a match but not the 3% (until a few weeks ago), so it was almost as if they were originally written with just the safe harbor match in mind. On the other hand, I have seen plans with the 3% in which only the owner defers, and my request was that they should have deferral forms signed by NHCEs indicating a choice to defer 0, just as a precautionary measure.