safe harbor plan startup

[Santo Gold]

I know this has been asked before, but could not find it (easily) on a prior thread, so...

Employer wants to have a safe harbor plan eff 1/1/17. Its 12/1/16 and the safe harbor notice is due. Or is it? Is there an exception to the 30 days before the plan year starts requirement for start up 401k SH plans? We'd like to have this effective for all of 2017, but there a some plan design questions not settled yet so we cannot have the document signed by 12/1/16.

Thanks

[Belgarath]

If truly a new plan, and not adding a safe harbor provision to an already existing 401(k) plan, then you could give the SH notice as late as January 1, 2017.

[ETA Consulting LLC]

If truly a new plan, and not adding a safe harbor provision to an already existing 401(k) plan, then you could give the SH notice as late as January 1, 2017.

Or whatever date (up to October 1, 2017) that you actually start the plan in 2017. Perfect answer since your OP clearly stated January 1, 2017. There may be some newbies that read this months from now and get the wrong impression

Good Luck!

[Tom Poje]

1.401(k)-3(d)(3)(i) ...the determination of whether a notice satisfies the timing requirements is based on the relevant facts and circumstances

(ii) the timing requirement is deemed satisfied if at least 30 days before the beginning of the year the notice is given...

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

so the regs say if you provide a notice 30 days beforehand you are guaranteed of having provided it timely. anything less becomes facts and circumstances.

for instance, a 3% SHNEC would probably be viewed less of a problem than a SHMAC

and since there are some design questions there is nothing to prevent you from provided everyone with something that says (assuming it is decided to provide some type of safe harbor) "we will be providing some special type of contribution starting Jan 1 = to x or y. when we finalize things we will provide you a notice - very shortly."

most likely that would cover a facts and circumstance issue.

[Beemer]

I have a client with a profit sharing plan who indicated today that they were interested in a safe harbor match 201k in 2017. They understand that this in late in the year and thought they might be interested in a traditional 401k for 3 months followed by a safe harbor match after April 1st. The plan does not currently allow 401k contributions.

I believe my options are:

1) Suggesting they add a 401k with a safe harbor match provision to the plan effective 2018, with amending and notices out next November.

2) Add a traditional 401k feature effective sometime in 2017, and changing it to a safe harbor plan in 2018.

3) Have 2 plans. Don't add the 401k to the existing PSP, but add a new plan, possibly with a short year.

Am I missing any options?

[RatherBeGolfing]

I have a client with a profit sharing plan who indicated today that they were interested in a safe harbor match 201k in 2017. They understand that this in late in the year and thought they might be interested in a traditional 401k for 3 months followed by a safe harbor match after April 1st. The plan does not currently allow 401k contributions.

I believe my options are:

1) Suggesting they add a 401k with a safe harbor match provision to the plan effective 2018, with amending and notices out next November.

2) Add a traditional 401k feature effective sometime in 2017, and changing it to a safe harbor plan in 2018.

3) Have 2 plans. Don't add the 401k to the existing PSP, but add a new plan, possibly with a short year.

Am I missing any options?

Why not add the SH to the PSP on 1/1/17 and distribute the notice immediately following the amendment that added the SH? As pointed out above, 1/1/17 effective date is not an issue as long as you don't have an existing 401(k) plan. Add the 401(k) and SH features now and you can treat the plan as a "new" plan.

Bottom line, you don't need the to wait until sometime in 2017 or 2018 to add the 401(k) feature or the SH feature. You also don't need to have two plans. The simplest solution is to amend now, distribute the SH notice now, and start as a SH plan on 1/1/17.

[Beemer]

The sources I was looking at refer to an existing plan, not necessarily an existing 401(k) plan, which is why I was considering two plans. This would not be the first plan year, but rather, the first plan year with a 401(k) provision.

I also don't think getting this in place by 1/1 would be easy as we would need to schedule employee meetings, etc.

The plan is currently trustee directed and the sponsor wants to move to participant directed accounts. (I should have mentioned that before).

[RatherBeGolfing]

The sources I was looking at refer to an existing plan, not necessarily an existing 401(k) plan, which is why I was considering two plans. This would not be the first plan year, but rather, the first plan year with a 401(k) provision.

I also don't think getting this in place by 1/1 would be easy as we would need to schedule employee meetings, etc.

The plan is currently trustee directed and the sponsor wants to move to participant directed accounts. (I should have mentioned that before).

If 1/1/17 isn't feasible on your or the clients end I can understand a different solution, but it certainly isn't necessary in order to comply with the law (and in my opinion will make things more complicated than they need to be).

For purposes of the safe harbor notice, if a PSP becomes a 401(k), you treat it like a new plan because the participants are treated as newly eligible for the 401(k) portion of the plan. Therefore, if you amend between now and Jan 1, 2017, you are ok as long as the notice is distributed ASAP. You could not do this if you had an existing 401(k) plan.

As for the trustee vs participant directed, that amendment is not a prohibited mid year amendment per Notice 2016-16, so you would be able to make that change during the plan year.

I still think that is the easy way to go.

1. Amend now to add 401(k) and SH feature as of 1/1/17
2. Distribute SH Notice with SMM ASAP after the amendment.
3. schedule employee meetings when possible in 2017
4. amend from trustee to participant directed during 2017

[Beemer]

OK, thanks!