Expand SH 401(k) to related entities during year?

[shERPA]

Plan sponsor is part of a controlled group, the SH 401(k) currently covers just one entity, the other 3 entities do not have a plan at all. The current plan passes the 410(b) ratio test.

Can the existing 401(k) be amended to extend the coverage to the other entities mid year? I know some interpret IRS guidance on this to permit no amendments except that which they have specifically authorized, while others interpret this to mean SH provisions and perhaps other provisions in the SH notice cannot be changed.

If they don't want to amend the existing plan, can the other related entities adopt a separate SH plan for 2014? Or are they precluded because the "Employer" (as defined in 414(b) and ©) already sponsors a SH plan?

If they cannot adopt a new, separate SH plan for 2014, can the entities without a plan adopt a non-SH 401(k) or does the mere presence of the SH in the related entity somehow interfere with this as well?

The plan year requirement in the (k) regs allow a new SH plan less than 12 months unless it is a successor plan under 1.401(k)-2©(2)(iii). This section defines Successor Plans to be plans where 50% or more of the eligible employees were covered by a CODA of the employer in the prior year. In this case none of the newly eligible ees has previously been covered by a CODA maintained by this employer, so any new plan would not be a successor plan.

[Tom Poje]

Q and A 37 at the 2012 ASPPA conference

A safe harbor 401(k) plan covers only salaried employees of Company X. The plan passes the ratio test under IRC
410(b). The plan year ends December 31. In June, X decides it would like to open up the 401(k) plan to the
hourly paid employees, effective on July 1. Would this amendment be a violation of IRC §401(k)(12)?

ASPPA response

No. Although certain amendments to a safe harbor 401(k) plan are not permitted to be made effective on
a date other than the first day of the plan year, this is not one of those types of amendments. The
amendment solely applies to employees who are not otherwise covered by the plan. The safe harbor rules
simply treats these individuals as newly eligible, and the safe harbor notice provided prior to the beginning
of the plan year would not have had to be distributed to these employees before July 1.

IRS Response

The IRS agrees with the proposed answer as long as there is no effect on the already-eligible employees.

[shERPA]

Thank you Tom. That's directly on point and very helpful.

[Tom Poje]

if my understanding of the 'logic' [ha ha ha ha ha] behind this is the 'new' people never received a notice. you are now making them eligible so they receive a notice.

this is different than 'amending' the plan that changes something else that would have been in the notice.

And there is noting in the regs about issuing a new notice if you 'changed' something that was in the notice.

or at least that is the best I can figure behind the logic.

I just wish they would say , ok, you can change stuff, and if you do so, update the safe harbor notice if needed.

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

and for those out there, have a blessed Easter (or a wonderful Passover if that is your background)

have gotten my special Resurrection cookies made (Springerle - chocolate version) and home made Potica Bread (walnut filled bread)

well, I'm not sure how to paste images any more, this is a link to the cookie design - makes a good 7 1/2 inch cookie.

http://houseonthehill.net/images/products/preview/m2061.jpg