Safe Harbor Plan Mid Year Eligibility Amendment

[XroadsTPA]

We have a Safe Harbor 401(k) Plan, calendar year plan, who would like to amend their plan document effective June 15, 2016 to change their eligibility requirements to immediate and date of entry to immediate. Then after June 15, 2016 return to original eligibility requirements.

Current plan document's eligibility provisions are 1 Year of Service and Age 21, with Quarterly entry dates.

1). Since this is a mid-year safe harbor amendment, from what I have read, I believe they can change their plan eligibility requirements effective June 15, 2015 to immediate eligibility with immediate plan entry, because they are including more participants who can receive the safe harbor contribution.

2) I think they will need to wait until January 1, 2017 to amend the eligibility provisions back to 1 Year of Service and age 21 with Quarterly entry dates.

I think we can do two plan amendments to accomplish what their intention is, 1) for the 2016 plan year and 2) for the 2017 plan year.

Any thoughts, recommendation, or insight on this? Thank you in advance for sharing your ideas.

[ETA Consulting LLC]

You basically want to change the provision that says anyone employed on June 15th is eligible for the plan and subsequent hires must work a year. There is a provision in most adoption agreements to do that (e.g. provide a date for which all current employees become eligible).

Amending the plan mid-year to accomplish this would seem doable with respect to the new IRS regulations on mid-year amendments. Some would argue that you could always do this.

Good Luck!

[Kevin C]

You also need to make sure the timing of the amendment doesn't make it discriminatory. For example, is the only person affected by the amendment the spouse of the owner? See 1.401(a)(4)-1(b)(4) and 1.401(a)(4)-5(a).

[XroadsTPA]

Thank you ETA Consulting, LLC and Kevin C. It's actually not the spouse, it's a NHCE....so I think we are good. Thanks again for sharing your thoughts.