Safe Harbor Non-Elective - Recordkeeper disagreement

[imchipbrown]

I have a (former?) client with a national payroll company that also sells a 401(k) plan and service.  He remits weekly payrolls to the payroll company and they calculate and mail the paychecks.  They debit a company account. 

The client has never been able to keep other than a catch-up contribution and tiny match in the plan because of non-existant NHCE participation.  He's finally having the best business years of his life and agreed to share his company's success with the employees and also solve the 401(k) deferral puzzle with a 3% SHNEC in 2019.

His desire is to fund the 3% SHNEC on a weekly basis along with payroll so as to avoid a big deposit requirement at year's end and to have his employees start seeing money go into their 401(k) accounts.  (They all have some money there since moving from a pooled account into individual accounts.)

He's (I'm) getting push back from the payroll company saying that this can't be done without amending the plan document.  They site two Adoption Agreement sections:

2. ADP Test Safe Harbor Contributions
For the Plan Year, the Employer will make the following ADP Test Safe Harbor Contributions to the Individual Account of each Eligible
Employee as described in item 1(b) above, in the amount of(select one):

Option 4:  Guaranteed Safe Harbor Non-Elective Contributions. ___3___ (not less than three) percent of the Employee’s Compensation for the Plan Year.

5. Safe Harbor Contribution Computation Period For purpose of applying the ADP Test Safe Harbor Contribution or the ACP Test Safe Harbor Matching Contribution formulas, Compensation will be based on the period selected below (select one)? Option 1: Payroll period. X Option 2: Plan Year. Option 3: Calendar month. Option 4: Plan Year quarter. Option 5: Semi-annual. NOTE: The calculation of a Safe Harbor Contribution based on the computation period selected shall not require the Employer to remit the Safe Harbor Contribution to the Trust earlier than the time required by Plan Section 3.04(D). They fear that making such an amendment (probably to Section 5 above) might throw the plan out of Safe Harbor status, which admittedly would be a disaster. Do you think I should just let go and wait for an early October amendment effective 2020?

[Bird]

I think the bigger issue is that you can't add SH to an existing 401(k) during the year.

[BG5150]

The the r/k that the relevant section is only for the "Computation" of the SH.  There is nothing in that section, and almost definitely not in any other section, that prohibits "depositing" the SH when they want.

[BG5150]

And tell your client:  you get what you pay for.

 

[RatherBeGolfing]

2 hours ago, BG5150 said:

And tell your client:  you get what you pay for.

 

 

Or as I had to tell a client this morning: You DON'T get what you refuse to pay for...

[imchipbrown]

Bird,

You are correct about adding SH during the year.  Not the case here.  Added in October 2018 for the 2019 year.

I assume that the payroll company's programing is geared a certain way according to the check-boxes.  They're associating changing their programing as a change to the Adoption Agreement, which as BG5150 points out is unnecessary.   Maybe the payroll company needs a 5150.

[shERPA]

I agree there is nothing that precludes depositing SH on a pay as you go basis.  Payroll companies don't administer or consult, they process.  One of them even has "Processing" in their name.  So the client pretty much has to follow their process or leave.   I suppose if one wants to push the issue, look to the definition of "Plan Administrator" and the language in the plan giving the PA the authority to interpret the plan doc.  Assuming the PA is the plan sponsor, try pointing out to the payroll company that the PA has determined it is not prohibited and if they don't want to allow it they are exercising discretionary authority over the plan, making them an ERISA fiduciary.  Sometimes the "F" word scares them, sometimes not. 

[Bird]

16 hours ago, imchipbrown said:

You are correct about adding SH during the year.  Not the case here.  Added in October 2018 for the 2019 year.

 

Ah ok.  I agree with everyone else that depositing as you go is no problem.  In fact it seems most p/r companies want to deposit as they go along; it fits with the "automated/not thinking about it" mindset.  Shrug.

[sb0828]

You also need to be sure the payroll company correctly calculates the eligibility for the SHNEC (if any) to avoid giving the contribution to ineligible employees.

[imchipbrown]

sb0828 - I've never sat at the desk that preparers the payroll.  I assume the payroll person at the company inputs hrs/week and checks hourly rates by employee then fires it off the the payroll company.  Maybe there's no place to input eligible/ineligible for SHNE.  Just a wild guess.

Client has let go of the issue for now, so I'll let it die.  I can't face another round of "Press 1 for this and 2 for that" through 4 menus, "What's the client's ID and grandmother's birthplace", "Who are you?"  "What's the issue?" "Oh, let me transfer you."  WAIT, can I get the direct number of the person you're transferring me to?  "It doesn't work that way".... ad infinitum until you finally get to the right person who can say "NO".