Employer Profit Sharing Contribution before 1 YOS eligibility

[jpmurphjp]

Our company has done much better than expected in the first 6 months. As a result, we are able to and want to contribute the 4% profit sharing portion to all our employees.

Unfortunately we elected 1 YOS for profit sharing eligibility on our Safe Harbor 401k plan.

Any other options for us to be able to provide this contribution across the board to our employees?

[BG5150]

QNEC?

[Belgarath]

While you should check with your TPA and/or ERISA counsel, since this has the effect of including a previously ineligible classification of employee, it seems to me that the IRS should be amenable to this amendment.

Now, although IRS representatives have INFORMALLY indicated that something like this should be acceptable, IRS comments from the podium at conferences do NOT give you reliance as official IRS guidance. So, this is why I recommend checking with counsel.

[Tom Poje]

since you said the company did better "in the first 6 months" I can't tell from the question what year is being referred to or if the plan year is not a calendar year, etc. I assume you mean amend a current year and not prior year.

as pointed out, there are possible issue if the plan is a safe harbor, however at one ASPPA conference the IRS folks indicated you could probably amend for less stringent eligibility

if this is part of a restatement, I believe our document provider said "NO you can't amend a safe harbor mid year"

[Kevin C]

Bonuses for those not eligible might be another option.

You did not mention the size of the company. Changing to immediate eligibility can dramatically increase your participant count. If your plan is filing Form 5500 as a small plan (<100 participants), you'll want to at least consider the consequences of an increasing participant count. We are seeing audits for plans slightly over the large plan threshold running $10,000 - $15,000.

As Tom mentions, at least one document provider and a couple of frequent ASPPA speakers are still saying absolutely no mid-year amendments are allowed for safe harbor 401(k) plans. Two of them mentioned at the 2014 Annual Conference that they are still waiting for the IRS to bless amending to change Trustees mid-year. Other speakers and at least one document provider have taken what in my opinion is a more reasonable interpretation of the existing guidance. This subject has been beaten to death repeatedly here in many threads. The respective camps are deeply entrenched and positions rarely change.

[jpmurphjp]

Thanks much. This confirms what I had convinced myself regarding the situation regarding the Safe Harbor 401k.

For what it's worth, "in the first six months" refers to the start of the company which from a making money standpoint was in June of 2014.

I am also looking into the alternative of making a contribution into our employees' HSA accounts. We currently do monthly matching. Can we (and would it make sense) do an additional lump sum year end 2014 contribution into the HSA's as an alternative?