bpenfold Posted December 11, 2019 Share Posted December 11, 2019 I have a brand new start-up plan that started 1/1/19. The owner is just now calling me 12/11/2019 wanting to amend the plan to a SH plan because the company did well and he has extra funds to put to work (and not get taxed on). Obviously it is too late for that. And it is too late to change to SH for 2020. BUT... the owner is saying that his accountant, other attorneys and colleagues of his are saying we should be able to back date this and be able change the plan to SH for 1/1/2020 plan year. I can tell you that my Trust Co. and our TPA partner would never go for ever doing something like that. But since the feedback he is getting is that should be okay he thinks there should be no problem doing that, especially if each employee signs off that they received their SH notice. Thoughts/opinions on how to handle? His other question is something I do not know the answer to. He asked if he terminated his plan and went to another company and started a new Safe Harbor plan elsewhere - that would be effective for 2020 - would be allowed to do that??? OR if decided to terminate services with us and convert the plan to a new provider and changing it to a SH Plan - what are the dates and deadlines for that? Could he in fact do that and have it be effective some time in 2020?? Any feedback will helpful! TIA! Link to comment Share on other sites More sharing options...
Lou S. Posted December 11, 2019 Share Posted December 11, 2019 Whether it is too late for 2020 could be up for debate. You've missed the 30-90 day "safe harbor window" before the start of the plan to distribute the Safe Harbor Notice for 2020 but you might be able to argue that the a notice distributed now before January 1 is timely based on facts and circumstances. Especially if you can show all participants have an effective right to change their elections before 2020 deferrals start and a sign off from every eligible participant might go a long way towards showing that. As for terminating and starting another 401(k), yeah successor plan rule will kill that. From IRS website https://www.irs.gov/retirement-plans/notice-requirement-for-a-safe-harbor-401k-or-401m-plan Timing requirement General Rule: Generally, the safe harbor notice must be provided within a reasonable period before the beginning of the plan year. The timing requirement is deemed to be satisfied if the notice is provided at least 30 days (and not more than 90 days) before the beginning of each plan year. If the notice is not provided within this time frame, whether the notice is timely depends upon all of the relevant facts and circumstances. Link to comment Share on other sites More sharing options...
chc93 Posted December 11, 2019 Share Posted December 11, 2019 Back date? Never seems like a good idea. Lou S. and bpenfold 2 Link to comment Share on other sites More sharing options...
Bird Posted December 12, 2019 Share Posted December 12, 2019 On 12/11/2019 at 5:27 PM, bpenfold said: And it is too late to change to SH for 2020. Nah. See Lou S. response above. I would do it. On 12/11/2019 at 5:27 PM, bpenfold said: BUT... the owner is saying that his accountant, other attorneys and colleagues of his are saying we should be able to back date this and be able change the plan to SH for 1/1/2020 plan year. I can tell you that my Trust Co. and our TPA partner would never go for ever doing something like that. But since the feedback he is getting is that should be okay he thinks there should be no problem doing that, especially if each employee signs off that they received their SH notice. Thoughts/opinions on how to handle? I think you have to say "you can't do it, and we won't assist you in doing it, and if you can find someone else to do it, go for it - but it's absolutely positively fraudulent." I agree that starting a new plan is not an answer. Having answered the Qs, I think you have to ask yourself (or your company decision-makers) why it wasn't set up as a safe harbor "maybe" plan in the first place? If not to (potentially) do exactly what the owner now wants to do, what was the purpose of the plan when it was set up? We're going to set up almost all of our (small) plans that way (SH nonelective "maybe"), unless there is absolutely positively some reason not to. Ed Snyder Link to comment Share on other sites More sharing options...
RatherBeGolfing Posted December 12, 2019 Share Posted December 12, 2019 You cant back date the notice or the plan document, and if that was the suggestion from an attorney, I would suggest finding a new one. Too late for 2020 SH? nope. Facts and circumstances will determine whether less than 30 days was a reasonable notice period. AKconsult 1 Link to comment Share on other sites More sharing options...
Kevin C Posted December 12, 2019 Share Posted December 12, 2019 The reasonable time requirement for the notice is determined based on facts and circumstances. Personally, I think you still have time, but you need to hurry. I would get the notice to them today with instructions to distribute immediately. As for backdating, don't do it and don't help them do it. If they insist, it's time to fire a client. I don't see any mention of successor plans in the SH notice timing rule for new plans in 1.401(k)-3(d)(3)(ii). While the regs seem to say adopting a new plan would give additional time to send the notice, I'm not convinced the IRS would agree that it applies in your situation. But, there is no need to go to the expense of adopting a new plan effective 1/1/2020. Most of our small plans are safe harbor, too. But some employers don't want to commit to the needed level of employer contributions for SH. We discuss it with all of them, but it's the client's decision. Link to comment Share on other sites More sharing options...
bpenfold Posted December 12, 2019 Author Share Posted December 12, 2019 In response to anyone saying that we could do it - how could we make all of this happen in a timely manner? Today being Dec 12th, we still need to amend the plan document first, get signatures, process any and all notices....all of this has to go through the proper channels with the TPA which takes time. The TPA is very stringent and they do not waiver on their rules and deadlines. It seems the consensus is it can be done (if we can show and prove the ee's received the SH Notice before 1/1/20) but my hands are tied because if our partner TPA won't do it, I cannot force them. Ugh! Link to comment Share on other sites More sharing options...
bpenfold Posted December 12, 2019 Author Share Posted December 12, 2019 1 hour ago, Bird said: Nah. See Lou S. response above. I would do it. I think you have to say "you can't do it, and we won't assist you in doing it, and if you can find someone else to do it, go for it - but it's absolutely positively fraudulent." I agree that starting a new plan is not an answer. Having answered the Qs, I think you have to ask yourself (or your company decision-makers) why it wasn't set up as a safe harbor "maybe" plan in the first place? If not to (potentially) do exactly what the owner now wants to do, what was the purpose of the plan when it was set up? We're going to set up almost all of our (small) plans that way (SH nonelective "maybe"), unless there is absolutely positively some reason not to. To answer your question - last year when I reviewed the plan options he specifically said he was only starting the plan for the benefit of the employees, not himself - which is always one of my first questions. He also knew he did not want to commit to having to do a SH Match. I definitely go over the 'what if' scenarios and he was still confident about keeping the match discretionary. I don't think that he was expecting to have such a great year and now he is faced with having the extra income ($100k) that he is needing to put somewhere or be taxed on. But setting it up as a SH 'maybe' plan is a very good point. I will be honest I did not realize you could do that. I have definitely learned something so thank you for that! Link to comment Share on other sites More sharing options...
Bird Posted December 12, 2019 Share Posted December 12, 2019 2 hours ago, bpenfold said: To answer your question - last year when I reviewed the plan options he specifically said he was only starting the plan for the benefit of the employees, not himself - which is always one of my first questions. He also knew he did not want to commit to having to do a SH Match. I definitely go over the 'what if' scenarios and he was still confident about keeping the match discretionary. I don't think that he was expecting to have such a great year and now he is faced with having the extra income ($100k) that he is needing to put somewhere or be taxed on. But setting it up as a SH 'maybe' plan is a very good point. I will be honest I did not realize you could do that. I have definitely learned something so thank you for that! OK, and setting aside the inflexibility of the TPA noted already for 2020 (I think we assumed you were the TPA), for 2019, what would adding a safe harbor do that simply making a regular profit sharing contribution wouldn't do? It (SH) would have allowed the owner to contribute $19K/$25K, but I assume that he would be able to contribute something based on others' contributions, and you're talking about $100,000...which sounds like profit sharing money to me. The existing document would typically already have profit sharing language in it (whether it is ideal or not is another matter) and if not then it can in fact be amended to add it, or amended to change it, although that discussion can go into the weeds quickly...e.g. you could in fact add a second plan if the existing profit sharing language is undesirable and unchangeable for reasons I won't get into right now. And now that we know you're not the TPA (are you the financial advisor?) that raises the question - what is the real Q here, trying to get rid of $100,000? ...and why isn't the TPA answering (or asking) that Q? Not trying to be nasty but this has taken on a different perspective. Is the TPA a...large...payroll company? No need for specifics but if so we can all roll our eyes and understand the real problem. Ed Snyder Link to comment Share on other sites More sharing options...
Kevin C Posted December 12, 2019 Share Posted December 12, 2019 3 hours ago, bpenfold said: In response to anyone saying that we could do it - how could we make all of this happen in a timely manner? Today being Dec 12th, we still need to amend the plan document first, get signatures, process any and all notices....all of this has to go through the proper channels with the TPA which takes time. The TPA is very stringent and they do not waiver on their rules and deadlines. It seems the consensus is it can be done (if we can show and prove the ee's received the SH Notice before 1/1/20) but my hands are tied because if our partner TPA won't do it, I cannot force them. Ugh! Sounds like they need a new TPA. If this had been one of our clients, they would have had the amendment and 2020 SH notice by today. The closer you get to 1/1/2020, you will have fewer people agree that the notice was provided a reasonable period before the beginning of the year. AKconsult 1 Link to comment Share on other sites More sharing options...
Larry Starr Posted December 12, 2019 Share Posted December 12, 2019 22 hours ago, bpenfold said: I have a brand new start-up plan that started 1/1/19. The owner is just now calling me 12/11/2019 wanting to amend the plan to a SH plan because the company did well and he has extra funds to put to work (and not get taxed on). Obviously it is too late for that. And it is too late to change to SH for 2020. BUT... the owner is saying that his accountant, other attorneys and colleagues of his are saying we should be able to back date this and be able change the plan to SH for 1/1/2020 plan year. Can you spell "TAX FRAUD"? Sure you can! I can tell you that my Trust Co. and our TPA partner would never go for ever doing something like that. But since the feedback he is getting is that should be okay he thinks there should be no problem doing that, especially if each employee signs off that they received their SH notice. Thoughts/opinions on how to handle? Ask him to ask his accountant, other attys, and colleagues to put that recommendation in writing to him; see what they say then. Separately, I don't know that it's too late to amend to SH for 2020. Do the amendment by 12/31 and hand out the new SH notices ASAP. His other question is something I do not know the answer to. He asked if he terminated his plan and went to another company and started a new Safe Harbor plan elsewhere - that would be effective for 2020 - would be allowed to do that??? IF he couldn't do it with the existing plan, none of these gimmicks will work either. However, I think you can do it if you move now. OR if decided to terminate services with us and convert the plan to a new provider and changing it to a SH Plan - what are the dates and deadlines for that? Could he in fact do that and have it be effective some time in 2020?? Any feedback will helpful! You are obviously hung up on the 30 day notice; that is a safe harbor, but not the law. If you get the new SH notice out immediately (even if you have not finished amending the plan), I believe you are fine. TIA! David Schultz 1 Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
Larry Starr Posted December 12, 2019 Share Posted December 12, 2019 5 hours ago, bpenfold said: In response to anyone saying that we could do it - how could we make all of this happen in a timely manner? Today being Dec 12th, we still need to amend the plan document first, get signatures, process any and all notices....all of this has to go through the proper channels with the TPA which takes time. The TPA is very stringent and they do not waiver on their rules and deadlines. It seems the consensus is it can be done (if we can show and prove the ee's received the SH Notice before 1/1/20) but my hands are tied because if our partner TPA won't do it, I cannot force them. Ugh! Your problem (and the client's) is that you have a "partner" who can't deliver the goods. Probably one of those "big box" ones! If a client called me this morning, we could have it done this afternoon, or by tomorrow at the latest. BTW, you don't have to PROVE that the employees got the SH notices; just distribute them. The answer is to get a TPA that delivers the goods. Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
Scott50 Posted December 13, 2019 Share Posted December 13, 2019 If the employer is flush with cash, and the plan allows for discretionary match and/or profit sharing, use that provision. You aren’t tied to a larger SH provision in the future. Link to comment Share on other sites More sharing options...
RatherBeGolfing Posted December 14, 2019 Share Posted December 14, 2019 17 hours ago, Scott50 said: If the employer is flush with cash, and the plan allows for discretionary match and/or profit sharing, use that provision. You aren’t tied to a larger SH provision in the future. If the ER is flush with cash, a SH contribution shouldn't be an issue. The main reason you use a SH provision is because you cant pass ADP/ACP and/or you have top heavy issues. Not being tied to SH in the future is not going to help you with ADP/ACP/TH. Link to comment Share on other sites More sharing options...
Larry Starr Posted December 14, 2019 Share Posted December 14, 2019 On 12/13/2019 at 5:30 PM, Scott50 said: If the employer is flush with cash, and the plan allows for discretionary match and/or profit sharing, use that provision. You aren’t tied to a larger SH provision in the future. I don't think you understand why SH provisions are used. Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC President Qualified Plan Consultants, Inc. 46 Daggett Drive West Springfield, MA 01089 413-736-2066 larrystarr@qpc-inc.com Link to comment Share on other sites More sharing options...
bpenfold Posted December 16, 2019 Author Share Posted December 16, 2019 Thanks for the responses. Our TPA partner is a large, reputable firm - and it is not a payroll company. They are sticklers for pension law and they just will not go outside of that and be non-compliant. I was mostly curious how others may have handled a client in similar situations...where a client is pushing for something that goes against the law. The second part of the question was to find out if you are allowed to terminate a plan and start another plan. I did learn there is a 1 year wait period. But the question still remains if he were to NOT terminate the plan but instead convert services to another provider would he be allowed to change to SH? By the responses that I have seen it seems like others would be willing to do that. Link to comment Share on other sites More sharing options...
RatherBeGolfing Posted December 16, 2019 Share Posted December 16, 2019 41 minutes ago, bpenfold said: Our TPA partner is a large, reputable firm - and it is not a payroll company. They are sticklers for pension law and they just will not go outside of that and be non-compliant. I was mostly curious how others may have handled a client in similar situations...where a client is pushing for something that goes against the law. I think you are missing the points being made here. Everyone here is in agreement that backdating should not take place and should never even have been suggested. What has been pointed out over and over again is that it NOT against "pension law" to to make the plan safe harbor now, nor will it make the plan non-compliant. If your current provider claims it cannot be done, it is either because They don't know what they are doing (not very likely) Their internal operations can't handle it because it is outside of their cookie cutter model. (most likely) I know one big national firm that require January 1 changes to be submitted early November. Not because that is what the law requires, but is the time they need in order for their "amendment teams" to get it done on time. Most folks on this board can get it done, LEGALLY, in one day. Bill Presson, Bird and Larry Starr 3 Link to comment Share on other sites More sharing options...
Bird Posted December 16, 2019 Share Posted December 16, 2019 A bit lost in the shuffle here is the Q/suggestion about making a profit sharing contribution for 2019 - has that been considered/discussed? Ed Snyder Link to comment Share on other sites More sharing options...
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