Safe Harbor Mid Year Amendment - Predecessor Service

[52626]

Client has a safe harbor 3% plan- Company A. They have a second company ( not a controlled group) that has a 401(k) Plan - not safe harbor.- Company B

Recently they started to have employees transfer between companies. They want to give employees in Company B who transfer to Company A service credit for purposes of eligibility.

Since this would take an amendment, are they prohibited from adopting a mid year amendment for this change effective in 2014?

They are expanding coverage to allow additional employees to participate in the plan. Would the IRS take issue with this mid year amendment?

Thanks

[Tom Poje]

At the 2012 ASPPA Conference Q and A 37 : (reminder such responses don't necessarily reflect actual Treasury guidance, but at least it is something to fall back on)

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)?

Proposed 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.