Reducing a Safe Harbor Nonelective mid year

[cbendertpa23]

We are taking over a client that is currently funding a 5% non-elective safe harbor. Can they reduce this to 3% mid-year without having to do ADP/ACP testing?

[Lou S.]

Is it written in the document as 5%? Was 5% in the safe-harbor notice that was distributed to participants? If the answer to either of these questions is "yes", then you can not reduce it until the next year Plan year.

If the document says "at least 3%" and the safe-harbor notice says "at least 3%" but they historically have done 5%, then you are probably fine with doing 3%.

And by "funding" do you mean on a per payroll, monthly or quarterly basis? If yes, I would be very concerned with changing it mid year.

[cbendertpa23]

Thanks Lou. Yes, the document and safe harbor notice states that the employer will fund an amount equal to 5%. No wording on "at least 3%".

[austin3515]

How about amending the plan year to have an 8/31 year end and then switch to 3% effective 10/1. That might work. I can't say for sure but depending on how important it is, something to check out... I think the only requirement is that the next full plan year has to be safe harbor. I don;t think the requirement is that it has to be the same contribution. You can check the regs. There is info in there about changing the plan year.