Freeze a 401(k) plan

[sb0828]

I have a client with a 401(k) plan which will be merged into the 401(k) plan of their parent company on April 1, 2019. The parent company has asked the client to freeze contributions (but not loan payments) effective January 1, 2019. Is the client required to provide the plan participants with any advance notice of this freeze?

[Larry Starr]

1 hour ago, sb0828 said:

I have a client with a 401(k) plan which will be merged into the 401(k) plan of their parent company on April 1, 2019. The parent company has asked the client to freeze contributions (but not loan payments) effective January 1, 2019. Is the client required to provide the plan participants with any advance notice of this freeze?

Understand the need for this question on 12/28! :-)

A PENSION plan has an advance notice requirement but a profit sharing plan (401(k)) does not.  I think you can execute the necessary amendments by 12/31/18 and accomplish your objective.

 

[austin3515]

Perhaps there is no legal requirement, but it sounds pretty cold not to give people a heads-up.  As a practical matter you should tell them before their first pay check in 2019.

And you did not say this was a safe harbor 401k plan, and whether or not a safe harbor notice was handed out.  That would make this a much more interesting question.

[Larry Starr]

On 12/28/2018 at 8:08 PM, austin3515 said:

Perhaps there is no legal requirement, but it sounds pretty cold not to give people a heads-up.  As a practical matter you should tell them before their first pay check in 2019.

And you did not say this was a safe harbor 401k plan, and whether or not a safe harbor notice was handed out.  That would make this a much more interesting question.

Cold or not, the question was whether it could be done, and the answer is yes.  Of course they should notify the employees asap.  And if it was a calendar year SH plan, even if the notice was given for 2019, terminating it on 12/31/18 makes the notice a non-event.  FWIW.

[austin3515]

I just don't recall the rules for terminating a safe harbor plan after the notice was distributed to the participants. And they're not terminating the plan, they're merging it in.

But like I said I'd be curious to know if the plan was a safe harbor and whether the notice was distributed, and whether or not notice went out prior to 12/31/18 that this was all ending.  Depending on that fact pattern, I think the plot would thicken.

[Kevin C]

I'm with Larry on this one.  No advanced notice was required for a calendar year SH plan if the freeze was adopted by 12/31 and effective 1/1/19.  The safe harbor rules for terminating plans are in 1.401(k)-3(e)(4) and they only apply if the final plan year will be less than 12 months.  Even with a short final year, no advanced notice is required if the plan termination is in connection with a 410(b)(6)(C) transaction or a substantial business hardship. I also agree the participants should be notified asap.

Distributing a SH notice and then terminating  or freezing the plan before 12/31 may very well create an employee relations problem. But, the SH notice doesn't prevent them from timely amending the plan.  The terms of the plan control whether the plan is safe harbor (and whether there will be any contributions), not the notice. 

[austin3515]

Well to be clear  I neither agreed nor disagreed :)

But I did find at least very lengthy discussions on just this topic.  But they were so old they can barely be trusted.  

I see the point about the commitment not being "solidified" until 1/1/19.  I am just not sure there is a black and white answer anywhere.  But if someone has something (even an ASPPA Q&A) I would sure like to see it.  Not that I don't trust you guys of course!

Maybe I'll start a new thread...

 

 

[Larry Starr]

19 hours ago, austin3515 said:

Well to be clear  I neither agreed nor disagreed :)

But I did find at least very lengthy discussions on just this topic.  But they were so old they can barely be trusted.  

I see the point about the commitment not being "solidified" until 1/1/19.  I am just not sure there is a black and white answer anywhere.  But if someone has something (even an ASPPA Q&A) I would sure like to see it.  Not that I don't trust you guys of course!

Maybe I'll start a new thread...

 

 

There are some things that you know that you know; I know I know this one. The answer is black and white on this one. During my tenure on overseeing the ASPPA Q&As, I don't remember this question being raised, but if it was, I'm guessing the committee would simply have agreed we knew the answer and published it (just expecting our friends at IRS would simply say "of course"). FWIW.