Setting up a new plan for 2021 - missed the SH deadline, correct?

Hi

To confirm, if sponsor wants to set up a new 401k plan for 2021, they are late for safe harbor for 2021, correct?

Same question for an existing PS plan and wants to add 401k feature for 2021.

There is no way to set up any plans that have safe harbor for 2021, correct? Just checking out there.

Any 401k deferral will be subject to ADP for 2021 unless they use the 5% rule, correct?

Thank you

I'm pretty sure you still need 3 months of deferral opportunity for safe harbor. So while SECURE added expanded options to add SH Non-elective (the 3% and 4% options) to existing 401(k) plans, I think you still need a full 3 months to get safe harbor relief for brand new plan or converted PS plan.

That is also my understanding i.e. must have deferrals option for at least 3 months.

Looking for clarification.... 

I understand that a new 401(k) must be adopted by 10/1 to ensure that the participants have at least 3 months to make deferrals for that year.  

- A straight PS plan has until December 31, correct?
- A single member business 401(k) has until December 31, correct?
- A 401(k) can be adopted any day from 1/1 ~ 10/1... correct?

What is the rule if the plan sponsor wants to convert a PS into a SH? is there a deadline for that?

A newly established SH401(k) Plan or PS only converting to SH401(k) would have to do so by October 1 to satisfy the 3 months of elective deferral rule for a calendar year Plan.

You can adopt a new 401(k) or convert existing PS plan to a regular 401(k) right up until the end of the plan year, December 31st for calendar year but you can run into questions about effective availability of deferrals if owners can defer but rank and file effectively cannot. You'd be subject to testing so often prior year with the 3% default is often done for plans that get established say in December. That would allow HCEs to put 5% of pay + catchup. Concurrently the plan is either amended to SH or current year testing for the following year.

If you have an existing regular 401(k) in place than you want to make SH for calendar year plans you can do it up to November 30th by amending in at least 3% non-elective safe harbor contribution or between December 1 and December 31 by amending in at least 4% non-elective safe harbor contribution. I forget if SECURE extended the 4% non-elective option retroactively after the plan year up until due date of tax return with extensions, perhaps someone can chime in on that.

12 minutes ago, Basically Green said:

A straight PS plan has until December 31, correct?

Under IRC 401(b)(2), as added by the SECURE Act, a profit sharing plan can be adopted as late as the sponsor's tax filing deadline for the year, including extensions.

13 minutes ago, Basically Green said:

A single member business 401(k) has until December 31, correct?

Yes. The issue preventing you from adopting a 401(k) retroactively is that you have to make the actual deferral election no later than December 31. While the plan could be adopted retroactively, you can't make a retroactive deferral election, so there is no way to make a contribution into a 401(k) plan if it was adopted retroactively.

15 minutes ago, Basically Green said:

A 401(k) can be adopted any day from 1/1 ~ 10/1... correct?

10/1 is only the deadline if you want to have a safe harbor 401(k) plan. A non-safe harbor 401(k) plan can be adopted as late as December 31. Although if you have non-HCEs who would be eligible, and the HCE is the only one who is able to make a deferral election between the time the plan is adopted and the end of the year, your testing is going to be problematic, to say the least.

17 minutes ago, Basically Green said:

What is the rule if the plan sponsor wants to convert a PS into a SH? is there a deadline for that?

If you mean for a PS plan to add a safe harbor 401(k), that is also 10/1. The 401(k) feature has to be effective for at least 3 months.

Ahh... Zeller posted just before I did.. so let me amend my post.

- To go from PS to 401(k) you just need to give everyone 90 days.
 

As always, Thanks for the help!

Just now, Basically Green said:

Can not convert a PS into a SH Match after the year began?  To go from PS to SH Match  you would have to allow for a whole year's worth of deferrals?  

 

PS only could convert to non-elective or matching SH mid year, but you still have to have at least 3 months of deferrals so could do it January 1 - October 1 for calendar year plans.

401(k) can convert to SH mid year but only on non-elective 3% or 4% rule.

On 11/12/2021 at 3:50 PM, Lou S. said:

If you have an existing regular 401(k) in place than you want to make SH for calendar year plans you can do it up to November 30th

Coincidentally, today a client that setup a straight 401(k) for the employees only now wishes to participate in the plan.  According to Lou's post above, I can amend the plan now to be a 3% NEC safe harbor as long as I do it by November 30.   Correct?

A follow up on this as I was just told something by someone that I am not aware of.

Existing PS plan.

Wants to add 401k deferral and SH for 2022.

As far as I know, it has to be set up prior to 10/1/2022, still correct?

But this someone told me that, a notice has to be provided 30 days prior to 10/1/2022 i.e. by 9/1/2022. I must admit never heard of this before.

What am I missing?

Thank you

Well, back when safe harbor notices for a 3% nonelective were required, then sure, it needed to be issued a reasonable time before deferrals for the year start.

Are they adding a matching or non-elective safe harbor? If they are adding a matching safe harbor then the safe harbor notice still needs to be distributed 30-90 days prior to deferrals starting to automatically be deemed reasonable notification by the IRS. However, you can distribute the notice less than 30 days in advance and still be deemed reasonable based on all facts and circumstances.

If you are adding the non-elective safe harbor the notice is no longer required.

So, if starting 10/1, must give a notice by 9/30? Assume match.

If you are willing to argue that one days notice is reasonable, sure. It might, it might not depending of facts and circumstances. The higher the percentage of NHCs that actually start deferring on that fist payroll in October would probably be in your favor for reasonableness if the IRS questions it. If most folks don't start til much latter and the owner drops in the 402(g) limit from his bonus in December that probably wouldn't be in your favor for a reasonable notice period.