safe harbor plan termination

[thepensionmaven]

Client has terminated PC safe harbor 401K because he can not afford the match.

He has matched 3% non-elective through the date of termination, 8/31.

Must he do the 3% non-elective on W-2 for the full 12 months or just for the 9 months through date of plan termination?

I believe only through date of termination.

[Kevin C]

The rules for SH plans having a final plan year are in 1.401(k)-3(e)(4). Not being able to afford the match is a long way from having a substantial business hardship. With the limited information you provided, he probably falls under 1.401(k)-3(e)(4)(i), which means the accrual continues until the effective date after 30 days advanced notice was given to employees. Was a notice of the suspension of the safe harbor match given to participants?

[Belgarath]

Agree with Kevin. But to add to it, if you want to determine the "business hardship" requirements to see if the client qualifies, take a look at IRC 412©(2).

[Bill Presson]

Client has terminated PC safe harbor 401K because he can not afford the match.

He has matched 3% non-elective through the date of termination, 8/31.

Must he do the 3% non-elective on W-2 for the full 12 months or just for the 9 months through date of plan termination?

I believe only through date of termination.

If it's 3%, I'm assuming you didn't actually mean "match"?

[Tom Poje]

In addition, there may be other issues. If plan is top heavy, I believe you lose the "get out of top heavy free card" and need to provide top heavy for mid year entrants.

In addition, at least based on the response at the 2010 ASPPA Conference if assets aren't paid out within a reasonable time, the plan's term date might not be considered reasonable. so, while the safe harbor ceased, the IRS, I guess, could require top heavy through the end of the year. And so, the plan has stopped and everything is 100% vested anyway. I believe 'reasonable time' is considered a year.

DC plan is top heavy and has a plan year ending 12/31. The plan terminates
on September 15, 2010. Normally, TH minimums are provided only if the
employee is employed on the last day of the plan year. (Assume that there
are salary deferrals during the year so that, if a top heavy minimum is
required, it needs to be made.)
Questions:
(1) For the 2010 plan year, is 9/15/2010 treated as if it were the last day of
the plan year, so that only non-key employees who are employed on that
date are entitled to a TH minimum?

(1) Of course, if there is no employer contribution, there would not be an obligation to provide top
heavy minimum contribution. But, if there were contributions to keys during the year, including
elective deferrals, there is a top heavy minimum based on compensation and employment
through 9/15/10. Plan must liquidate within a reasonable time under Rev. Rul. 89-87 or else
9/15 date may not be reasonable. There is effectively a short plan year for top heavy purposes