Amending the Profit Sharing feature of a SH Plan

[Barbara]

I have a 4% Enhanced Match Safe Harbor Plan where the document provides for a discretionary integrated profit sharing allocation.  the 2018 SH Notice just says "refer to the SPD" under the heading of non Safe Harbor Employer contributions.

Do you think I can change the 2018 profit sharing contribution to be cross tested so that the two owners can maximize their benefits ?

[Larry Starr]

Yup.  No problem.

Notice 2016-16 Permits…

• Mid-year amendments to plan provisions that do not impact the content of the safe harbor notice; 

[Tom Poje]

for the moment, lets ignore the fact the plan is a safe harbor plan

If someone has already accrued the right to the contribution (e.g. only need 1000 hours and no last day rule) than I don't see how that is possible to amend the formula - at this late date people have probably already accrued a right to an integrated formula contribution. that could result is a cutback.

so I think the answer depends on what are the current conditions to receive a profit sharing.

[CuseFan]

and don't forget, even if there is a last day rule, there may be exceptions to that (and hours) for death, disability and retirement - so if you had any of those occurrences I think you're precluded from amending the formula.

[Luke Bailey]

In addition to the points made by Tom Poje and Cuse Fan, is it not possible to argue that the safe harbor notice incorporated the terms of the SPD by reference for purposes of Notice 2016-16, so we would want to know if the SPD described the current allocation formula in detail?

[Larry Starr]

15 hours ago, Tom Poje said:

for the moment, lets ignore the fact the plan is a safe harbor plan

If someone has already accrued the right to the contribution (e.g. only need 1000 hours and no last day rule) than I don't see how that is possible to amend the formula - at this late date people have probably already accrued a right to an integrated formula contribution. that could result is a cutback.

so I think the answer depends on what are the current conditions to receive a profit sharing.

Tom, I assumed we had an end of year requirement (as EVERY ONE of our plans do) or the question would not have been asked.  But you are right to point out that a last day provision is necessary to even consider this.

[Larry Starr]

1 hour ago, Luke Bailey said:

In addition to the points made by Tom Poje and Cuse Fan, is it not possible to argue that the safe harbor notice incorporated the terms of the SPD by reference for purposes of Notice 2016-16, so we would want to know if the SPD described the current allocation formula in detail?

But it would also be including by reference the last day requirement, so nothing has accrued that needs to be protected.  I don't think that particular point is an issue.

[Barbara]

First, the profit sharing contribution is discretionary.  Next, there is a 1,000 hours and last day rule in place for that discretionary profit sharing contribution, so i don't believe anyone has accrued a benefit for 2018..

[Kevin C]

Notice 2016-16 allows a wider variety of mid-year amendments than the very brief description above implies.   III. B also has a list of prohibited mid-year amendments.   I think the IRS approach of it's allowed unless prohibited is a lot more practical than providing a list of allowed amendments as some asked them to do.  For amendments that change the required safe harbor notice content, it also  makes sense to provide an updated notice and the opportunity for a revised deferral election.
 

Quote

 

III B. Mid-Year Changes to Safe Harbor Plans and Notices

A change made to a safe harbor plan or to a plan’s required safe harbor notice content does not violate the requirements of §§ 1.401(k)-3 and 1.401(m)-3 merely because the change is a mid-year change, provided that (i) if it is a mid-year change to a plan’s required safe harbor notice content, the notice and election opportunity conditions in section III.C of this notice are satisfied, and (ii) the mid-year change is not described in the list of prohibited mid-year changes in section III.D of this notice.

 

Changes to the "required safe harbor notice content" is described in III.A by 

Quote

... Also, for purposes of this notice, “required safe harbor notice content” refers to the information that is required by the safe harbor plan regulations to be provided in a plan’s safe harbor notice.

Section III.C of this notice sets out special conditions that must be satisfied for a mid-year change that alters the plan’s required safe harbor notice content. Not every mid-year change to a safe harbor plan alters information required to be provided in a plan’s safe harbor notice (for example, information about a plan’s entry date is not required to be provided in a plan’s safe harbor notice). Similarly, information required to be included in a plan’s safe harbor notice can change mid-year even if no change is made to the safe harbor plan (for example, a change in contact information).

Of course, you'll want to read the entire Notice ...