Last date to change SH Match to SH Nonelective

[ConnieStorer]

Based on my google search it appears that I have until 12/31/2025 to amend a 401(k) Plan for the 2026 Plan Year regarding the Safe Harbor Match.  However, I cannot find anything that specifically states that the Amendment can change the Safe Harbor Method from a SH Match to the SH Nonelective.  Is this allowed?  The client has already distributed the SH Notice to the Participants stating that the Plan will provide the basic SH Match for 2026.

If the 401(k) gurus out there believe I can amend the Plan, then I will prepare a new Notice stating that the Plan will be providing the SH Nonelective rather than the Match.

Thanks for any input.

[RatherBeGolfing]

Editing my initial answer since I misread the question .  You are asking if you can amend the plan by 12/31/2025 for a 2026 change from SHM to SHNE?  

Technically, you can make the change at any point before the plan year starts.  A question that could be asked is whether participants will have a reasonable time to make changes to their elections after you amend, and if they are negatively impacted by the change if they do not have reasonable time to change their elections.  I think you are fine since you are providing the SHNEC in place of the SHM and participants will not miss out on any of the employer contributions even if they do not have enough time to change their elections for the first payroll.  It would be different if you went from 3% SHNEC to 4% match and a participant did not have time to change their election to receive the full 4% match.

[austin3515]

Definitely aggressive to make this change after the notice goes out since participants were eligible for a 4% match and now they will only get 3%.  I'll be there will be a lively discussion as to whether or not this can be done.  If you want to be lock tight, you could do a 4% SH Nonelective.  If you did that, you have no harm no foul every which way you turn and I would have no problem with this change.  If you are doing this to max out an owner you would likely be doing a Gateway minimum that is greater than 4% anyway.

I don't know if the following will be possible or not, but I would suggest a short plan year from say 1/1/2026 to 3/31/2026.  Then have your 3% SHNEC start 4/1/2026 and remain on a 3/31 plan year for a while.  If you are trying to max out a calendar year tax payer in 2026, then this probably doesn't work.

[RatherBeGolfing]

4 minutes ago, austin3515 said:

If you want to be lock tight, you could do a 4% SH Nonelective.

Agreed.  And most documents say that the SHNEC is at least 3%, so you may be able to do 4% for 2026 and 3% for 2027 without the need for amendment.

 

[John Feldt ERPA CPC QPA]

6 hours ago, RatherBeGolfing said:

I think you are fine

Ditto.

[austin3515]

So I think the analysis here is, there is lots of guidance in 2016-16 on mid-year changes to Safe Harbor plans but NOTHING at all regarding amendments made before the beginning of the year, regardless of whether the SH Notice has been distributed or not (I spent some time looking this morning out of curiosity).   Switching from match to SH Nonelective is not a "protected benefit" issue.  The employer can change its approach  before the plan year starts.

From an optics perspective with employees (And who knows, maybe one day the IRS) it just looks really bad, since you just told them you were going to give them 4% (assuming they contribute enough of course).  But of course this is not an HR / Employee relations forum!

[ConnieStorer]

Thanks everyone.  I really like austin3515's suggestion to go with the 4% SHNE.  We are possibly adding a Cash Balance Plan and the gateway will be at least 7.5%.

[BG5150]

Fromt he IRS website:

General rule: Generally, the safe harbor notice must be provided within a reasonable period before the beginning of the plan year. The timing requirement is deemed to be satisfied if the notice is provided at least 30 days (and not more than 90 days) before the beginning of each plan year. If the notice is not provided within this time frame, whether the notice is timely depends upon all of the relevant facts and circumstances.

(Emphasis Mine)

[austin3515]

3 minutes ago, BG5150 said:

If the notice is not provided within this time frame, whether the notice is timely depends upon all of the relevant facts and circumstances.

And the relevant fact and circumstance in my 4% SHNEC example is that everyone gets the same or more from their employer. 

 

[RatherBeGolfing]

46 minutes ago, austin3515 said:

And the relevant fact and circumstance in my 4% SHNEC example is that everyone gets the same or more from their employer. 

 

Its likely that no notice is required at all for the SHNEC, so really the only issue is that some participants may have changed their elections for 1/1/26 to get the full match.  I could see an argument that they should have a reasonable time to change it less if they want to, but I don't think that is a facts and circumstances argument against the SHNEC.  They may defer more in the first pay period than they would have if they had not received a SHN with 4% match.  From a compliance perspective, I think they are ok.  They may have some upset employees/participants, though. 

[austin3515]

I think the issue with not doing the safe harbor notice is that if you don't have the "maybe not" language you can't discontinue it mid-year unless you are operating at an economic loss.  According to the ERISApedia text book it's a little gray, but I still send them out for this reason.   

[CuseFan]

True, but if the employer is locked in for gateway purposes, especially adding a CBP to the testing, discontinuing any SHNE isn't likely in the cards.

[austin3515]

Also True, LOL.