Amending 401k to Safe Harbor Non-elective mid year 2020

[Pammie57]

We have a client who currently has a 401(k) that does a discretionary match.  They have matched for January and part of February  of 2020 already.  They failed ADP for 2019 so want to do a Safe harbor going forward.  Under the SECURE Act,, can they amend now to do the 3% Non-elective for the remainder of the year (as of the date of adoption of the SH plan? )

If so, do they perform ADP test for the months they had the normal match or do they pass for 2020?  

[C. B. Zeller]

There is no official guidance on the matter yet, but my understanding is:

• They can amend the plan now, or any time up through November 30, 2020, to be a 3% SHNEC for 2020, effective retroactive to 1/1/2020
• They can amend the plan any time up through December 31, 2021 to be a 4% SHNEC for 2020
• Under either of the above, the plan will be exempt from the ADP test for 2020
• The plan will be subject to the ACP test on the match, since the ACP safe harbor still requires a notice before the beginning of the plan year

[Pammie57]

Good to know about the ACP portion.   Thanks

[justanotheradmin]

4 hours ago, C. B. Zeller said:

• The plan will be subject to the ACP test on the match, since the ACP safe harbor still requires a notice before the beginning of the plan year

I would point out that I have heard mixed opinions about the ACP safe harbor applying or not applying. Like many people I have been listening to many of the industry webinars on the SECURE act, and while I think many of the presenters agree with this, some seem to think the ACP safe harbor would still apply. 

So moral is to wait and see what the guidance says? 

[David Schultz]

FWIW, as one of those frequent speakers, it is very unlikely to me that the ACP safe harbor would be able to be retroactively applicable.  There is too much potential for abuse.  Moreover, the statutory language doesn't modify IRC §401(m), so it would be a rather aggressive stretch for the IRS to apply the new rules to the ACP test as well.