Safe Harbor Amendment Restriction Work Around

[Young Curmudgeon]

Stuck with 2016 provisions in a 401k due to Safe Harbor. Is there anything that prevents me from setting up a second 401(k) with different provisions for 2016 and then just merging them together at year end? This seems like a solution for a company that wants to start PS contributions with a tiered formula when their old plan has SS integration.

[Tom Poje]

debatable issue.

obviously the notice was provided. could you amend and give a new notice this late?

the 30 day rule is to provide an employee to make an informed decision (basically, as to defer or not)

but that 30 days is simply a guarantee you gave someone sufficient time to make a decision. If you give someone less than that you don't have the 'guarantee' if the issue ever was raised.

If the safe harbor is a match then it is probably pushing things.

If it a 3% shnec, then changing the ps formula probably has little effect on someone's decision to defer or not.

no one has accrued a ps contribution, so certainly in a non safe harbor plan you could change the formula before the plan year begins.

even in the case of no plan changes, the IRS has even said if no timely notice was provided with a 3% SHNEC you can probably get away with the notice provided ASAP

[Bird]

If you have the ability to do it, I would do the amendment now (today) and prep a new notice (today), as I think Tom is saying. i.e. I wouldn't freak out about the 30 day rule, which is just a safe harbor (hate to use that term in this context) for the timing of the notice.

But yes, you could just set up a new plan with the tiered allocation in 2016 and merge them later. I'd make it a PS-only or if I used a 401(k) document, not check the 401(k) box. I'm not sure but I think the SH restrictions would apply to any 401(k) plan of the employer.

[Jim Chad]

Can anyone direct me to the latest IRS info on what amendments are allowed, midyear?

I have a company that want to change from 12 months eligibility to 1 month eligibility.

[Tom Poje]

Officially or unofficially?

they have never really released any 'additional' possible amendment, but at least at the ASPPA Conference they have expressed an opinion you could modify some things.

Q and A 37 2012 ASPPA conference

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 Response

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.

The IRS agrees with the proposed answer as long as there is no effect on the already-eligible employees.

[and again, one has to remember, any such IRS responses are guidelines and don't necessarily reflect an actual Treasury position.]

................

This one sticks in my mind because I asked one of Corbel's lawyers (and for lack of a better term one of ASPPA 'higher ups') about this before the Q and A. I used the example suppose the company decides to put in 50,000 in profit sharing. if you change eligibility then the already eligible will now get less. He simply looked at me and said "It would be better not to raise that point during the Q and A. We are happy to have gotten them to agree at least to this much"

even after a few years, I'm still uncomfortable with the lawyer's response.