Safe Harbor Correction

[FT Retire]

A brand new plan for the 2022 plan year has a safe harbor match provision. The plan document states that safe harbor contributions are determined at the end of the plan year. However, there was only 1 payroll in 2022 that was in effect. Plan sponsor provided safe harbor match for that one payroll. Is the plan sponsor required to true-up the safe harbor match for the entire year and if their original intention was to fund it on a per payroll basis, can this be corrected under SCP? 

[Bill Presson]

There was only one payroll in the last three months?

[FT Retire]

Yes, the company has a monthly payroll and the 401(k) contributions did not begin until December 2022

[Lou S.]

Doesn't sound like you have a safe harbor plan for 2022 if you only had one month of deferral opportunities.

As for the true up, RTD, if it says to true up based on annual salary, you true up based on annual salary.

 

[Bird]

46 minutes ago, Lou S. said:

Doesn't sound like you have a safe harbor plan for 2022 if you only had one month of deferral opportunities.

As for the true up, RTD, if it says to true up based on annual salary, you true up based on annual salary.

 

*I think* (or am just guessing/assuming) ftam is saying the plan was set up in a timely manner (by Oct 1) but that no one actually deferred until Dec. It's likely, or at least possible, that the reason is that enrollment materials weren't available so in fact then there were not deferral opportunities for 3 months which is problematic.

I agree that if the plan says the match is based on the full year then it is, and I don't know if that can be "corrected."

[Lou S.]

4 minutes ago, Bird said:

*I think* (or am just guessing/assuming) ftam is saying the plan was set up in a timely manner (by Oct 1) but that no one actually deferred until Dec. It's likely, or at least possible, that the reason is that enrollment materials weren't available so in fact then there were not deferral opportunities for 3 months which is problematic.

I agree that if the plan says the match is based on the full year then it is, and I don't know if that can be "corrected."

Good point. Maybe everything was done timely but folks just didn't turn in enrollment forms until December.

[FT Retire]

Actually, just realized something. Plan can't be safe harbor match for 2022. Any safe harbor match contributions deposited into the plan should be re-characterized as standard employer match contributions for the 2022 year and since the plan only has HCEs (Owners + Children), the plan is in compliance. 

[bito'money]

I think that under the regs, you can have a safe harbor plan for less than 3 months in the initial plan year if the employer just came into existence during the year and you started the plan as soon as administratively feasible after they did. 

If the plan doesn't say that safe harbor matching will be determined based on each payroll period, and that the match will be deposited by the end of the following plan year quarter, that may be seen as requiring the true-up (and that taking away the true-up after the fact would be a cutback).  You can't do a cutback amendment under SCP. 

 

[bito'money]

26 minutes ago, ftam said:

Actually, just realized something. Plan can't be safe harbor match for 2022. Any safe harbor match contributions deposited into the plan should be re-characterized as standard employer match contributions for the 2022 year and since the plan only has HCEs (Owners + Children), the plan is in compliance. 

Ftam, if, as you say, the plan document really says it is a safe harbor plan, and you sent out notices telling everyone it is, I don't think that's the end of it. There's more to being qualified than 401(a)(4). How about 401(a)(7) (failure to meet section 411 due to a 411(d)(6) violation)?