safe harbor notice for 2017 distributed, but...

[Belgarath]

Plan is subsequently (prior to 12/31/2016) AMENDED to remove the safe harbor provision for 2017.

I see no problem with this, but I've had several different people disagree with me. I don't see any legal obligation to continue the plan as a safe harbor plan for 2017 just because a safe harbor notice was distributed, as long as the plan is amended prior to the beginning of 2017.

Am I wrong on this?

[Lou S.]

I don't see a problem. Though I'd be getting a supplemental notice out ASAP that the plan is no longer SH.

[RatherBeGolfing]

I have had this argument before and I agree that you CAN remove the safe harbor prior to the first day of the SH plan year. However, I don't think it strictly a yes or no question.

First, it depends on if it is a non elective or a match. A non elective I think you can remove at any time prior to the start of the SH plan year since it would not influence NHCEs decision to defer.

If it is a match, it comes down to whether the employees had a reasonable opportunity to change their deferral election after the employer amended to remove the SH. Can you show that all employees who wanted to stop deferrals after you eliminated the match had an opportunity to do so? If yes, I think you are in the clear. A small company could easily have all their participants sign something to affirm or change their previous election even with a few days notice. This might be an issue for bigger companies and at that point I think they should stick with the 30 SH suspension notice period.

I think there is at least an argument to be made that if an employer cancels the match on 12/31/2016, and cannot show that all employees had a reasonable opportunity to change their election, the employees are entitled to 30 days of matches on their deferrals.

[Belgarath]

Thanks. I wondered about that aspect as well, but I couldn't find any hard guidance prohibiting the amendment. Might not be the best practice in terms of employee relations, etc., but I haven't yet been able to find anything saying you can't do it.

Hope you all have a great holiday!

[RatherBeGolfing]

Same to you!

[John Feldt ERPA CPC QPA]

"Can you show that all employees who wanted to stop deferrals after you eliminated the match had an opportunity to do so?"

I think the IRS would ask if they were given the opportunity to increase their deferrals to make up for the newly absent employer safe harbor contributions. I find it somewhat interesting how they tend to think the opposite of what many of us would generally think.

[Tom Poje]

What exactly does your notice say? The IRS did indicate a few years ago it probably should contain the following:

It is the intent that the safe harbor contribution be made throughout the year. There is always the possibility that such contribution will be reduced or suspended during the year.

If a reduction or suspension is necessary, a supplemental notice will be provided, and such reduction or suspension will not apply until 30 days after the supplemental notice is provided.

I myself would see no problem changing things for 2017 as issuing a new notice at this time still provides people with enough time to 'make an informed decision on deferring"

[BG5150]

First, it depends on if it is a non elective or a match. A non elective I think you can remove at any time prior to the start of the SH plan year since it would not influence NHCEs decision to defer.

I disagree. Some people consider the 3% a supplement to their deferrals. So with an elimination of that, they may want to increase their deferrals.

[RatherBeGolfing]

First, it depends on if it is a non elective or a match. A non elective I think you can remove at any time prior to the start of the SH plan year since it would not influence NHCEs decision to defer.

I disagree. Some people consider the 3% a supplement to their deferrals. So with an elimination of that, they may want to increase their deferrals.

I agree. But they are not losing an employer benefit based on their participation like they are with a match, so I still think it may create an entitlement with match that isn't there with the non elective. With a match the plan is actually "soliciting" participation with a promise of an employer benefit. It is certainly bad PR for participants like the one in your example though.

Would you argue that a non elective suspension is subject to a 30 notice period even if suspended before it actually started?

[Kevin C]

The rules regarding 30 day advanced notice and giving participants a reasonable period of time to change their deferral elections, etc. are in 1.401(k)-3(f), which deals with mid-year amendments to safe harbor plans. The amendment under discussion would be adopted prior to the beginning of the year, so those rules do not apply.

I agree it could be a PR problem.