Details re: 3% nonelective safe harbor provisions implemented mid-year

[Guest Kelly Igel]

Suppose an employer with a calendar year plan timely provided the 3% nonelective safe harbor "might notice" to their employees, then mid-way through the year followed up with the supplemental employee notice declaring that the 3% nonelective contribution definitely would apply for that plan year...

At the beginning of the year, the employer was making discretionary matching contributions equal to 3% of compensation. When the safe harbor supplemental notice was distributed mid-year, the employer stopped making the match and started making the 3% nonelective contribution instead.

The 3% nonelective contribution must be made based on compensation for the entire year, correct? If the document contains a discretionary match, was it permissible for the employer to cease the discretionary match mid-year? Could those matching contributions be "reclassified" to satisfy the 3% nonelective contribution requirement? Thanks.

[rcline46]

Yes, because that is what the SH notice / rule says.

Yes, it is a discretionary match and may be modified at any time (but not if it is a document match - then must amend!)

No, yes, maybe (GG) Since the SH notice was timely given, and the match also given, I don't think it can be recharacterized, especially if the match is NOT an EOY, 1000 hrs match. If being recharacterized due to satisfaction of Top Heavy, yes - but this could lead to other problems. Maybe the participants will be too upset to even consider it.