ADP Safe Harbor, Midyear Expansion in Eligibility

[Briandfox]

Plan that offers a basic safe harbor match to all NHCE's wants to expand eligibility to allow a definitely determinable class of HCE's to participate (midyear).

I know midyear amendments to safe harbor plans are frowned upon, however, the same employees would be eligible both pre and post the amendment.

This employer just wants to provide additional benefits to a subset of it's HCEs (same as the basic match).

Can this be done? If not via a safe harbor contribution is there any alternative that can be done this year?

Thanks

[Tom Poje]

at the 2012 ASPPA Conference (Q and A #37) the IRS expressed the following opinion.
(That doesn't necessarily mean it represents an actual Treasury position, but at least it gives something to point to if the issue gets raised as to why you did what you did)
Q.
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 suggested answer:

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.

[Briandfox]

Thanks, this is helpful.

Is the alternative a VCP submission?

[Tom Poje]

I guess I am a bit confused at the moment. if these people haven't deferred there is nothing to fix under VCP.

what type of plan year are you talking about? if it's calendar year I would just amend for the upcoming year. a bit late to do much for 2014.

[Briandfox]

Unforunately, in operations the HCEs have been allowed to defer in spite of the fact that the plan document excludes them.

Since this all happened in 2014 my thought was to retroactively amend the eligibility provisions of the safe harbor plan before the last day of the 2014 plan year so that everyone could keep their intended safe harbor contribution.

I know some amendments can be adopted by the end of the plan year and be retroactively effective to the beginning of the year to conform the plan to operations. My gut tells me that this is not such an amendment because it relates to eligibility under safe harbor.

The alternative is to do essentially the same thing anyway but submit under VCP.

[BW]

Given the very limited SCP options for retroactive amendment I'd go VCP.