9/30 deadline for safe harbor 401(k)

[thepensionmaven]

I'm getting conflicting opinions on this issue.  The plan document needs to be signed by 9/30/23, but does an account need to be established by 9/30/23?

My client, owner only, wants to do a safe harbor 401(k) for 2023.  American Funds is telling him they need at least 30 days to set up an account on their system, and they are telling him it is too late to do a safe harbor 401(k) as they can't set the plan up by 9/30.

I believe he would be better served to go with a 401(k)/profit sharing plan, effective 1/1/23, sign the document 9/30/2023, with deferrals to start 10/1/23 and remitted at least on a monthly basis?

[C. B. Zeller]

Why does an owner-only want a safe harbor plan?

[Lou S.]

Agree with Zeller why does owner only need a SH?

If there are future employees to worry about set it up a regular 401(k) for 2023 and make safe harbor effective for 2024.

If they really need safe harbor for 2023 sounds like you have 2 options. Withhold the contributions starting October 1 and deposit as soon as the contract is setup with possible late 401(k) deposits or open a bank account in the name of the Plan to hold the deposits until the they can be transfer to American Funds and allocated to participant accounts.

[thepensionmaven]

Clarification, PC with two employees. I don't believe plan has to be funded by 9/30, only signed document.

[Lou S.]

The document needs to be signed before employees can defer.

The Plan has to allow for 3 months of effective deferral to be SH.

If you can get the Plan signed, get participant's completed election forms, and start payroll deductions by 10/1, you're good.

Then you just have a timeliness of deposits issue if there is no trust to deposit it to.

 

[Bill Presson]

16 hours ago, Lou S. said:

The Plan has to allow for 3 months of effective deferral to be SH.

 

This is the part your client needs to focus on. Whatever payrolls exist from 10/1-12/31, you need to allow the participants to defer from them. So if the payrolls are on the 15th and the end of the month, you've got an extra few weeks to make things work. If the first payroll in October is 10/6, it's a much shorter time frame.

[cheersmate]

 

On 9/20/2023 at 7:23 PM, Lou S. said:

The document needs to be signed before employees can defer.

The Plan has to allow for 3 months of effective deferral to be SH.

If you can get the Plan signed, get participant's completed election forms, and start payroll deductions by 10/1, you're good.

Then you just have a timeliness of deposits issue if there is no trust to deposit it to.

 

If for some reason the employer failed to adopt the Plan by 9/30, rather it is signed 10/5, making the plan be considered a "normal" 401k Plan for 2023. Then, adopt an Amendment by 11/30/2023 to make it a Safe Harbor Plan, providing a 3% SH non-elective contribution?

[Lou S.]

I don't think that works as you sill need the 3 month effective deferral to be SH, It's not like you can put in a new 401(k) on 11/30 with 3% NEC and say you are a SH. I guess some might argue there is 3 months if the first October payroll is after 10/5 but I'm not sure I'd want to argue that position.

[RatherBeGolfing]

30 minutes ago, Lou S. said:

I don't think that works as you sill need the 3 month effective deferral to be SH, It's not like you can put in a new 401(k) on 11/30 with 3% NEC and say you are a SH. I guess some might argue there is 3 months if the first October payroll is after 10/5 but I'm not sure I'd want to argue that position.

This is correct, you cannot do retroactive SH if you did not meet the requirements for SH inthe first place.

 

[cheersmate]

21 hours ago, RatherBeGolfing said:

This is correct, you cannot do retroactive SH if you did not meet the requirements for SH inthe first place.

 

 

22 hours ago, Lou S. said:

I don't think that works as you sill need the 3 month effective deferral to be SH, It's not like you can put in a new 401(k) on 11/30 with 3% NEC and say you are a SH. I guess some might argue there is 3 months if the first October payroll is after 10/5 but I'm not sure I'd want to argue that position.

The basis for my asking this is to do with SECURE changes, allowing a "regular" 401k to adopt "SH" provisions as late as 11/30 of the same year to be applicable via plan amendment if the SH is a 3% SHNEC... ASPPA had touched on this and commented they were awaiting comments from IRS as this was not clear one way or the other. (SECURE goes further to permit such an Amendment to SH post-PYE if you increase the SHNEC to 4% in lieu of 3%.) I haven't seen anything since and was hoping someone may have. With this in mind, could an employer adopt a new "regular" 401k Profit Sharing Plan theoretically at any time prior to 11/30/2023, and then Amend the Plan by 11/30/2023 to a "Safe Harbor" 401k (3% SHNEC)?

[Lou S.]

Until the IRS specifically blesses establishing a SHNEC for a new plan with less than 3 months of deferral with some official guidance saying that is OK, I wouldn't do one.