401k safe harbor and mid year changes

[Tom Poje]

Notice 2013-74

(In Plan Roth Rollover)

this recently released Notice contains guidance on whether you can change a safe harbor mid year. Interesting, yes you can change the safe harbor mid year to add a Roth rollover but only if adopted by the end of 2014. I'd note, this really has nothing at all to do with the safe harbor itself, yet they are saying this is only temporary. normally you wouldn't be able to change a safe harbor mid year. just when I thought they might be taking a softer approach to mid year changes.

Q 5 (b)

In accordance with § 1.401(k)-3(e)(1), this notice provides a temporary period during which sponsors of safe harbor plans are permitted to make a mid-year change to provide for in-plan Roth rollovers of otherwise nondistributable amounts. The period ends December 31, 2014. Thus, in the case of a § 401(k) safe harbor plan that has a calendar-year plan year, in order for the plan to permit an in-plan Roth rollover of an otherwise nondistributable amount during 2013 or 2014, a plan amendment providing for that option must be adopted by December 31, 2014.

[austin3515]

Here's my philosophy:

The REGS prohibit amendments to anything to do with Safe HArbor. So I say, OK, no amendments to definition of Comp, I can't change a pay-period match calc to an annual calc, I can't make eligibility more restrictive. The EOB actually says it would be "ridiculous to preclude an amendment that expands eligibility to another group of employees because that would be contrary to public policy" or something to that affect, and I agree whole heartedly.

But in my opinion, to disallow the following is also ridiculous (as some TPA's do): Automatic rollovers, enhancement of vesting schedule, use of forfeitures, addition of early retirement, addition of auto enrollment (similar logic to EOB's take on eligibility expansions), adition of in-service distributions, addition of loans. (incidentally, perhaps removing loans I would have a problem with because it may have influenced a participants decision to defer, a criteria cited by the EOB).

I also don't have a problem changing a SH plan to new comp from integrated, because it has nothing to do with Safe Harbor and would not influence a participant's decision to defer.

Maybe I will live to regret my cavalier attitude, but to date, the IRS has not explicitly prohibited such amendments. I suppose based on the above idiotic position in the revenue procedure, I would tell a client that they cannot add in-plan roth conversions mid-year (although they left the door open for those that are based on distributable events), but again, they did not prohibit anything else, and because the REGS allow for it, well by golly so do I.

They must have something better to do.

[Kevin C]

I agree it's stretching things for the IRS to claim that in-plan Roth rollovers affect plan provisions that satisfy the rules of section 1.401(k)-3. If you try hard enough, you might get there by saying that since the safe harbor contributions are either QNECs or QMACs, the plan provisions listing the distribution restrictions on the safe harbor accounts could be provisions that satisfy the rule in 1.401(k)-3 that the safe harbor contributions be QNECs or QMACs. I certainly would not interpret that Q&A as saying there is a draconian near total prohibition of mid-year amendments to safe harbor plans. I feel that if the IRS really wanted a total prohibition of mid-year amendments to safe harbor plans, the 401(k)/401(m) regs would have said so.

I don't think it will surprise anyone that I agree with Austin.

[TPApril]

9/30 plan year for safe harbor (3% ER) plan recently sent out their safe harbor notice.

they are also in the process of restating the plan document in full, not yet completed, but to be signed prior to 10/1. One change is they are adding in a Roth feature.

not sure if a supplemental safe harbor notice is necessary, particularly since the safe harbor is nonelective, rather than a match

[RatherBeGolfing]

Is that the only change?

It is adding a new contribution, I would do a new SHN.  Is the sponsor large enough where a supplemental SHN would be costly or time consuming?  

[austin3515]

TPAPril, this thread was written a whole world ago.  Are you familiar with IRS Notice 2016-16? It should address your question, and yes there is a re-notice requirement.  I just wanted to make sure you knew the whole framework of this conversation is night and day from the thread above.

https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-401k-plans-and-notices

[TPApril]

yes, thanks! I'm thinking may be more advisable though to delay start of Roth feature (along w/in plan Roth rollovers) from plan year start 10/1 to next 1/1 to allow time for updated safe harbor notice and enrollment