Safe Harbor amended out of Safe Harbor, now wants to amend back in

[Belgarath]

So, a Safe Harbor 401(k) plan amended out of Safe Harbor (match) a couple of weeks ago. Now they got a PPP loan and want to amend back in, for the next 8 weeks, then will probably want to amend out again.

I say no, but this stuff has been changing so fast that I wanted to make sure I haven't missed anything. 

[BG5150]

It doesn't make any sense to do that, b/c they will still be subject to TH and ADP testing for the year anyway.

If they are worried about having to make the contribution to satisfy the PPP, just amend to a non-discretionary match calculated per payroll.  Then amend out again.

[Larry Starr]

5 hours ago, Belgarath said:

So, a Safe Harbor 401(k) plan amended out of Safe Harbor (match) a couple of weeks ago. Now they got a PPP loan and want to amend back in, for the next 8 weeks, then will probably want to amend out again.

I say no, but this stuff has been changing so fast that I wanted to make sure I haven't missed anything. 

Before even trying to figure out the logistics, I would ask them WHY do they want to do that?  Probably no good reason and they don't understand the ramifications of what they are considering.  Your job is to find out what they think they are going to accomplish, and then advise them the best, legal way to do that, which may not be what they have asked. FWIW.

[Belgarath]

I understand these points, but they specifically asked this question. Yes, I can advise them on alternatives, good choices and bad choices, but I did want to make sure I hadn't missed anything. I had already thought about BG's solution as a solution that accomplishes what they are really trying to do, although I was thinking about a discretionary match instead - that way, they wouldn't have to amend out again - just stop matching.

Anyway, thanks for the responses.

[Kevin C]

Do you have access to the 2012 IRS DC Q&A handout from the ASPPA annual conference? Question 41 was about voiding a mid-year amendment to eliminate the SH contribution.  Your timing may not be the same, but you may find it interesting.

[Larry Starr]

5 hours ago, Kevin C said:

Do you have access to the 2012 IRS DC Q&A handout from the ASPPA annual conference? Question 41 was about voiding a mid-year amendment to eliminate the SH contribution.  Your timing may not be the same, but you may find it interesting.

Kevin, I probably chaired that session and wrote the Q&As, but I don't have it handy.  If you saw it, why didn't you just copy it into your response; that would have been helpful I would bet.  FWIW.

[Belgarath]

Thank you! I had never seen this.  In fact, I already used this approach on another plan just last week, but in that plan, the recission was PRIOR to the effective date of the amendment that removed the safe harbor. I'm not aware of any guidance allowing you to amend back in to safe harbor status during the same year when you already amended out, if you have passed the effective date of the original amendment. 

I already told 'em no can do, but if there is any other official guidance permitting it, I'm perfectly willing to feast upon some crow.

[msmith]

Voiding a mid-year
amendment to
eliminate safe harbor
feature
Employer X properly amends its calendar-year plan to
eliminate the safe harbor nonelective contribution
effective July 1st and provides notice to all eligible
participants on June 1st. Sometime between June 1st (the
date of the notice) and July 1st (the effective date of the
amendment), the business hardship that prompted X's
amendment is relieved such that X can continue the safe
harbor nonelective contribution. X adopts a second
amendment before July 1st that voids the first
amendment, and notifies participants accordingly. The
effect of the second amendment is to provide for the safe
harbor contribution without interruption. The notice to
participants is provided in a timely fashion, so that there
are no pay periods for which participants were making
deferral decisions with the understanding that the safe
harbor contribution would not be provided. Has the plan
lost its safe harbor status for the plan year? Does the
answer matter if the safe harbor contribution were a
matching contributions where a business hardship wasn't
needed in the first place to suspend or reduce the
contribution?
As long as the first amendment is voided in time to
prevent an interruption in the safe harbor
contribution, and participants are notified on a timely
basis, as noted in the question, the plan may be
treated as a safe harbor 401(k) plan for the plan year.
The answer is not dependent on whether the safe
harbor contribution is a nonelective contribution or a
matching contribution.
The IRS agrees with the proposed answer because of the facts
stated. Adequate notice is the key so that the eligible employees'
deferrals decisions are not compromised with the rescission of the
amendment.