SH implemented at mid year

[Jakyasar]

I am sure this was discussed and it is a very basic question:

My situation is reverse of what is going on, sponsor wants to add SH rather than eliminating it.

Existing 401k plan with deferral and discretionary match options. they provide 10% of deferral as match.

Plan consistently fails ADP for the past 3 years.

Sponsor wants to proceed with a safe harbor match, let's say effective 7/1/2020, standard 3% of the first 100% plus 50%.....

How will the plan satisfy SH for 2020 and is there any testing that needs to be done? How are the salaries considered for the first part of the year and second part of the year?

Assume that the discretionary match is made at the time the deferrals. So for the first 6 months, they made the match which is way less than the actual SH match amount would have been.

Thank you

[C. B. Zeller]

Safe harbor match requires a notice to be given before the beginning of the plan year. Therefore it is impossible to add SH match mid-year.

Thanks to the SECURE Act it is now possible to add SH nonelective mid-year or even retroactively after the end of the year.

[Jakyasar]

Thank you for the response.

Looks like only 3% non-elective can be added, is that correct?

What happens with:

"How will the plan satisfy SH for 2020 and is there any testing that needs to be done? How are the salaries considered for the first part of the year and second part of the year?

Assume that the discretionary match is made at the time the deferrals. So for the first 6 months, they made the match which is way less than the actual SH match amount would have been."

 

[Bird]

9 hours ago, Jakyasar said:

How will the plan satisfy SH for 2020

By making a 3% NESH for the whole year.

9 hours ago, Jakyasar said:

is there any testing that needs to be done

No ADP testing.

9 hours ago, Jakyasar said:

How are the salaries considered for the first part of the year and second part of the year?

It's all one year.

9 hours ago, Jakyasar said:

So for the first 6 months, they made the match which is way less than the actual SH match amount would have been.

SH match is not allowed so don't complicate things by thinking about what would have been.  If the plan says match is calc'd on a per payroll basis, then it is what it is.  If it says it is calc'd on an annual basis, then you'll have to review matching contributions at the end of the year and evaluate whether the actual matches made (I like to describe matches made on a per-payroll basis when the plan says they are calc'd on an annual basis as "estimated" contributions) need to be tweaked to comply with the document provisions.

[Jakyasar]

Thank you for your responses.

I miswrote when I said SH match, meant NESH, sorry for the confusion. It is very clear only NESH @ minimum 3%.

So the corrected question I have is, what happens to the discretionary match contribution deposited to each person's account for the first 6 months? Just tested for ACP? And this would be in addition to the full year NESH, correct?

Regards

[Dan]

Yes. The plan would satisfy ADP with the 3% safe harbor for the year but would need to ACP test the discretionary match.