Postpone Start of Safe Harbor 401(k)??

[chris]

Employer currently has a PSP. Employer has provided employees with a Safe Harbor Notice regarding the 401(k) which is to be effective April 1, 2001. Safe harbor notice basically says that 401(k) will be effective April 1, 2001, and that Employer will satisfy the safe harbor by making the 3% nonelective contribution. Employer now has run into administrative problems as far as finding an investment manager to handle the investment of the deferrals and the 3% safe harbor contribution. Current investment manager says it can be in place by June 1, 2001. Can employer now tell employees that the 401(k) (and the safe harbor contribution) will not begin until June 1, 2001 and send out a new safe harbor notice before May 1, 2001?

[actuarysmith]

Why is the April 1 date an issue? An employer has up to 12 months after the close of the plan year to make safe harbor contributions. Therefore, the fact that the trust wasn't established until June 1 does not seem relevant.

In fact, it might be an advantage for HCE's if you leave the date at April 1. This allows you to count compensation for deferral purposes back to April 1 and may allow some HCE's to put more money into the plan for the short plan year. (Of course, they would effectively have to contribute at a higher rate during the period 6/1 - 12/31).

[Richard Anderson]

Where have the PSP deposits been going?

If individual accounts are being set up, but won't be available until June 1, deposit deferrals to a pooled account in the plan's name and then transfer to the individual accounts on June 1.