Interesting question re mid-year amendment to SH plan

[Belgarath]

Unusual question came up. Sole prop - plan is a 3% SH plan, HC's are NOT excluded.

It has been proposed that the plan be amended to exclude the sole prop from receiving the SH for 2019, on the grounds that since the sole prop isn't required to receive a SH (if the plan is set up that way) that it is ok.

To me, this seems like a very aggressive approach, and I wouldn't do it. However, I always like to hear the opinions of others - anyone have a different viewpoint?

[Larry Starr]

36 minutes ago, Belgarath said:

Unusual question came up. Sole prop - plan is a 3% SH plan, HC's are NOT excluded.

It has been proposed that the plan be amended to exclude the sole prop from receiving the SH for 2019, on the grounds that since the sole prop isn't required to receive a SH (if the plan is set up that way) that it is ok.

To me, this seems like a very aggressive approach, and I wouldn't do it. However, I always like to hear the opinions of others - anyone have a different viewpoint?

This is a standard optional provision in our documents (and we almost always use it to exclude HCEs from the SH contribution since they are going to get the money anyway through the normal allocation formulas).  Doesn't matter if it's a self employed or a W-2 HCE. Why do you think this is aggressive?

 

[Bill Presson]

11 minutes ago, Larry Starr said:

This is a standard optional provision in our documents (and we almost always use it to exclude HCEs from the SH contribution since they are going to get the money anyway through the normal allocation formulas).  Doesn't matter if it's a self employed or a W-2 HCE. Why do you think this is aggressive?

 

I think the question is whether you can amend it in the middle of the year to not provide that SH contribution, not whether you can set a plan up that way.

I think the sponsor is stuck for this year and would need to amend it for the next. I wouldn't want to be that aggressive.

[justanotheradmin]

I agree with Bill. 

If such an amendment is effective mid-year, it would take the plan out of safe harbor status, as it's not a permissible mid-year change to safe harbor.  

[Larry Starr]

1 hour ago, Bill Presson said:

I think the question is whether you can amend it in the middle of the year to not provide that SH contribution, not whether you can set a plan up that way.

I think the sponsor is stuck for this year and would need to amend it for the next. I wouldn't want to be that aggressive.

Thanks Bill. Yes, on going back to re-read, the emphasis on the "mid year" change is not in the body of the question, and the subtlety of the change being mid year was missed.  On that basis, I certainly agree with you.  I wouldn't call it aggressive; I would call it a big no-no!