New Safe Harbor 401(k) Plan

[Dougsbpc]

have a client that initially wanted to adopt a profit sharing plan effective 1/1/15 for the entire year of 2015. They now want to adopt the plan as a 401(k) with a safe harbor match. They will also make a 10% profit sharing contribution for 2015.

I believe as long as the plan is adopted by October 1, we can provide the safe harbor notice on that day as well as salary deferral elections etc.

Question: clearly when we calculate the profit sharing contribution we can use full year salary. When we calculate the safe harbor match for 2015 can we also use full year compensation or are we limited to only the compensation between 10/1/15 and 12/31/15?

Thanks a million.

[ETA Consulting LLC]

Sure, you may match on the entire plan year Compensation if you design it correctly in the document.. You would not use payroll period match. Just be sure to draft the document correctly.

Good Luck!

[thepensionmaven]

I've run into the same situation - client sat on this for 3 months and now wants to move.

An added question, is there a minimum amount that would have to be contributed by 9/30?

Would the individual accounts need be set up by 9/30 or would a trusteed checking account with $2,000 or so suffice?

[ETA Consulting LLC]

You can set up individual accounts fairly quickly, but the hard-fast 10/1 date doesn't apply to that. So, a checking account being the only trust asset will suffice for that purpose. For the safe harbor provisions, you must allow an effective 3 months of deferrals. In many instances, the first payroll date after September 30th may not be until the 2nd week in October; giving you more time to actually set up the individual accounts. That shouldn't be a major show-stopper.

Good Luck!

[austin3515]

What is a show-stopper is if people are not offered the chance to defer from their first paycheck after 10/1. I've seen it happen (despite my admonitions) that the first 401k deposits were not until the middle of November. The point is, the requirement is not that the documents are signed by 10/1, but that there is a 3 month plan year, not just in form but in operation.