In-Service Distribution Amendment for Safe Harbor Plan

[Vlad401k]

We have a Safe Harbor plan that does not currently allow for In-Service distributions. The owner needs to take money out of his plan in order to help his business and be able to maintain the 401k plan. If he won't amend the document, he will have to terminate the plan.

I've read a lot about amending the Safe Harbor plan mid-year and because in-service distribution amendment was not on the list of allowable amendments, which leads me to believe that this amendment is not allowed. However, I've also heard people on here comment that amendments like that should be allowed for a Safe Harbor plan and the whole restriction was not meant to be an exhaustive list of all possible amendments.

What is your opinion? Do you think the owner should be able to amend the plan mid-year?

[Lou S.]

My opinion is adding In-service distribution should not present a problem, but the IRS may or may not differ. I believe there are several threads on this specific question if you do a search.

But do recall some sources are not available for in-service before 59 1/2 (or possibly later in some circumstances) even if you add in-service if that is an issue in this case.

[austin3515]

I would not bat an eyelash. I say amend!

[MWeddell]

There are multiple positions available on this issue.

The most conservative position is to only allow mid-plan year amendments to a 401(k) / 401(m) safe harbor plan if IRS guidance explicitly permits the amendment.

The position I tend to favor is to allow mid-plan year amendments to a safe harbor plan if the amendment would not alter anything in the safe harbor notice. For any amendment allowed under this standard and not the first, I suggest that one disclose the compliance risk in writing to the client. However, in your situation, this standard also would disallow the amendment because in-service withdrawal options must be described in the safe harbor notice: see Treas. Reg. 1.401(k)3(d)(2)(ii)(G).

Others (as describe more fully in other threads on BenefitsLink.com) advocate more permissive standards. I don't.

[austin3515]

I think an amendment is necessary to your position, which is that any changes to information that BENEFITS participants should be allowed. By your rationale an amendment changing vesting to immediate from 2/20 should be disallowed. To disallow such an amendment would be so far beyond the ridiculous it makes me lose my balance to think of it.

[K2retire]

I think an amendment is necessary to your position, which is that any changes to information that BENEFITS participants should be allowed. By your rationale an amendment changing vesting to immediate from 2/20 should be disallowed. To disallow such an amendment would be so far beyond the ridiculous it makes me lose my balance to think of it.

Perhaps, but that's the way many people interpret it.

[MWeddell]

My prior post accurately summarized my view, but its last paragraph mentioned that others' views differ.

Sorry, Austin, but I'm more interested in keeping my clients' plans in compliance with the regulations than preserving your sense of balance.

[QDROphile]

What about helping clients achieve legitimate desired goals within acceptable tolerances of risk and uncertainty? Not batting an eyelash is rather conclusive (rather than explanatory) with respect to a controversial subject, but it communicates a judgment about risk.