Terminating Safe Harbor Non-Elective Plan Mid-Year

We have a Safe Harbor Non-Elective plan that wants to terminate the plan in January of 2024. The plan's only participants at this point are the owner and his spouse.

What would be the requirements to terminate the plan? The owner would like to terminate the plan as early as possible.

Thank you.

You need to amend the plan to prospectively suspend safe harbor contributions (date must be at least 30 days out), terminate the plan as of a certain date (not earlier than the date of suspension of the safe harbor contributions), and update the plan to comply with current law. You must give a notice of suspension of the safe harbor contribution to participants at least 30 days before the suspension of safe harbor contributions is effective.

The owner will be required to make safe harbor contributions based on 2024 compensation until the date of suspension of the safe harbor contributions.

Example:

Adopt suspension and termination amendment on 1/15/24, effective 2/15/24.

Give participants notice on 1/15/24, telling them safe harbor contributions are being suspended effective 2/15/24.

Make 2024 safe harbor contributions for compensation through 2/15/24.

There are best practices with regard to the language in the termination amendment, but those aren't different when you're terminating a safe harbor plan vs. a non-safe harbor plan. 

In additional to what EBP says above, you will also lose safe harbor status for the year unless you meet certain conditions - there is an IRS notice pr Rev Proc on this, I forget which one. I think the conditions to still be SH are one of operating at a economic loss, business transaction like merger or acquisition, or dissolution of the company but I haven't reviewed it in a while so double check. But if the Owner & his wife are the only eligible participants you won't have to worry about testing issues even if you lose SH status.

Also if your current safe-harbor formula in the document excludes HCEs, or at least makes it optional for HCEs, you may have no contribution requirement.

Both of the above assume the owner and his wife are the only eligible, and not just the only contributing 401(k).