Amending profit-sharing component

[Guest JPIngold]

I've heard the warnings ad nauseum regarding mid-year amendments to safe harbor 401(k) plans and have heard the IRS reps talk about it at ASPPA.

Just wondering what the professionals are doing out there with respect to amending safe harbor plans at this time. The safe harbor notice I use (Sungard) refers the participant to the SPD with regard to "other employer contributions". It doesn't state how profit-sharing contributions are allocated nor what the allocation requirements are.

If I proceed with a PPA restatement of a plan now, with a 1/1/2014 effective date and the ONLY feature of the plan that I change is the profit-sharing contribution allocation methodology, meaning the safe harbor notice will look just like it did when it was distributed in November, 2013, am I pushing the envelope too far?

Is anyone out there doing this? In other words, are you restating for PPA with a 1/1/2014 date if nothing changes in the safe harbor notice?

Thanks.

[401king]

We've taken the firm stance, based on prior Q&A, that we will only amend for Roth, loan and hardships. Originally we thought it was okay if it wouldn't change the safe harbor notice, but have taken a more conservative approach since, based on the IRS' stance.

[Belgarath]

I would make the restatement effective 1/1/2014, BUT, in the Appendix A, make sure the Profit Sharing Allocation method is effective 1/1/2015.

[Lame Duck]

I agree with Belgarath. This is the position we have taken.

[Kevin C]

It's rare that we have a safe harbor plan wanting to make a change mid-year, but on those occasions, we followed the published guidance. If you go through the 401(k) and 401(m) safe harbor regulations, they tell you very specifically what kind of plan provisions can not be amended mid-year. Later published guidance responded to inquiries with examples of certain amendments that would comply with the published guidance. You'll have to decide for yourself about exactly what the IRS informal position on the topic is. I've been to the same ASPPA annual conferences and listened to the same IRS speakers, but never heard them say what others claim they said. I've even listened to the recordings of the sessions to see if I missed something and still couldn't find anything different than what I heard in person. ASPPA has requested that the standard for prohibited mid-year amendments be plan provisions mentioned in the safe harbor notice. That standard would create more problems than it would solve.

As for mid-year changes to the profit sharing formula, there are other issues to consider. What are the requirements to receive the PS contribution? 411(d)(6) prevents you from amending to make someone who already satisfied the requirements to receive a contribution become ineligible to receive that contribution. There is also some disagreement over whether that protection applies to the having the current allocation formula apply for the remainder of the plan year. You may find a good reason to delay the PS formula change to next year without even considering the safe harbor plan rules.

[Guest JPIngold]

Thanks for the comments. I'll probably play it safe and amend effective 1/1/15. This is a very small SH 401(k) plan with 5 participants, two of who are new in 2014. The PS formula was permitted disparity because of demographics. However, the demographics have now improved because the two new participants this year are young. So, I wanted to go to cross-tested methodology and not change the requirements for an allocation (YOS and employed EOY). Essentially, it wouldn't affect the SH provisions whatsoever, but it sounds like that would be risky. I guess we just lose one year of the additional benefit.

Thanks again.