Failure to provide safe harbor notice

[Guest VAP]

What is the penalty for a plan that fails to provide the Safe Harbor notice prior to the beginning of the plan year? We have a safe harbor plan that has a 10/1- 9/30 plan year, and we think the employer did not provide the notice prior to 10/1/2000 for their 2000 plan year.

Would the plan not be considered a safe harbor for 2000, and therefore subject to testing?

Thank you!

[Alf]

The answer may depend on how the document is worded. If the document has been amended to reflect the safe harbor provisions and it requires that a notice be provided or that the plan maintain safe harbor status, there may be a qualification problem.

If your amendment has not been adopted yet, your only problem is that you will have to run the ADP and ACP tests because you did not qualify for the safe harbor. Also, the IRS position is that a plan must specify the method being used to comply with the ADP test, so when your new law amendments are being drafted in 2002, you will need to make sure that the plan reflects that the 2000-2001 plan year was not safe harbor.