End of year amendment to safe harbor 401k

[Gilmore]

An existing, 3% safe harbor nonelective 401k plan, calendar year, uses a One Year Wait for eligibility.

The plan sponsor would like to amend the plan today, 12/1/2017, to permit anyone hired as of 12/1/2017 immediate eligibility.  This would bring in 2 HCEs and 6 NHCEs.

It seems that expanding the eligible ees is allowed mid year, but the timing seems aggressive, since the new entrants have only one month to defer?

Thanks.

[stephen]

FWIW: It's aggressive but allowed.  Based on the information provided 25% of the affected participants are HCEs so it doesn't seem to discriminate in favor of HCEs.

That said, I agree a month isn't long for NHCEs to defer but they can benefit.

I'll check in to see what others have to say on the matter.

[Tom Poje]

personally I think it smells. especially if the HCEs can put away the max. in effect, just looking at only the 6 people coming in, you have a 1 month plan year, which of course is forbidden for safe harbor. the exact reason safe harbors are supposed to be at least 3 months long to prevent HCEs from putting away a lot in a short period of time.

this situation appears to be different than if the plan always had monthly entry dates. especially given the fact 25% of the new people are HCEs

but then, remember I am a Grinch.

 

[Belgarath]

Yes, but you have the strength of 10 Grinches, plus 2.

[Kevin C]

Notice 2016-16, III D 2 says that the prohibition on a mid year amendment that reduces the number of employees eligible for the safe harbor does not apply to amendments that make otherwise permissible changes to age/service or entry date for employees not yet eligible.  If you can amend to keep someone out, I don't see why you can't amend to include additional employees.  Discriminatory timing [1.401(a)(4)-5(a)] of the amendment could be an issue, but doesn't sound like it based on your description.  But, with these employees not having a year of service in time to enter the plan in 2017 under current provisions, are they really HCEs for 2017? 

[Gilmore]

The 2 new HCEs are the spouses of the owners.  It is not anticipated that they will be benefitting.

[DMcGovern]

My nose seems to agree with Tom.  There's such a limited amount of time to notify participants, and allow them to make an informed decision on a change to their deferral election.  Doesn't seem to follow the "reasonable" time the regs require.

[Bill Presson]

46 minutes ago, Gilmore said:

The 2 new HCEs are the spouses of the owners.  It is not anticipated that they will be benefitting.

Then why the amendment now? Why not make it effective 1/1/18?

[Gilmore]

The idea was to have two additional, non-benefitting HCEs. 

My initial reaction was closer to Tom and D, although I appreciate the varied opinions.