Safe Harbor Plan and 11g amendment

[Dennis Povloski]

We set up a cash balance plan for a client for 2013. The client uses a bundled provider for their 401k, and we only administer the cash balance plan. Their 401k is a safe harbor 401k.

The client was supposed to have amended their document to allow for employer contributions (back in 2012, there were no employer contributions permitted). We now get to the end of 2013, and calculate their profit sharing contribution only to find out that they never amended the plan.

We're combo testing the cash balance with the profit sharing, but if the 401k doesn't allow for profit sharing, how can we make the contribution?

The bundled provider on the 401k is saying that since the plan is safe harbor, it cannot be amended to allow the contribution, and in fact it still can't be amended until 2015 because mid year amendments are not allowed for safe harbor plans.

What would anyone think about an 11g amendment to a safe harbor 401k that allocates a profit sharing contribution so that we can pass a failed discrimination test?

[John Feldt ERPA CPC QPA]

I don't see an amendment under 1.401(a)(4)-11(g) as a mid-year amendment. If they can't agree, then have them prepare and/or pay for cost to do a VCP submission to make the cash balance plan pass in order to remain qualified. Depending on the provider, it is possible they might see this issue as your problem, not theirs, since it's the cash balance plan that can't pass the testing on its own.

[Tom Poje]

Q 39 at the 2012 ASPPA Conference:

A safe harbor 401(k) plan fails the §410(b) coverage with

respect to its profit sharing plan component. Within 9-1/2

months after the close of the plan year, the employer

adopts a corrective amendment, pursuant to Treas. Reg.

§1.401(a)(4)-11(g). Does this amendment cause the

401(k) component to lose its safe harbor for the plan year

in which the corrective amendment is adopted?

ASPPA suggested answer

No. Regardless of the position taken by the IRS with

respect to amendments made to a safe harbor 401(k)

plan, an implied exception exists for any

amendments that are necessary to correct a violation

of the nondiscrimination testing rules, which is a

fundamental requirement for a qualified plan.

The IRS agrees with the proposed answer.