PainPA Posted November 26, 2024 Posted November 26, 2024 Hard to find some definite details on this concern and really only have 2 plans that are profit sharing only. Plan Sponsor has a Profit Sharing only plan for 20+ years. Now wants to add a 401k with a Safe Harbor design feature. 1.) Does the start of the 401k safe harbor have to be the 1st of the plan year? or can it be anypoint in the year to start the 401k? 2.) Is it mandatory when adding a 401k that that it have an automatic enrollment since it is not a "New Plan" Thank you in advance.
Peter Gulia Posted November 26, 2024 Posted November 26, 2024 About your question 2: Internal Revenue Code § 414A(c)(2)(A)(i)’s exception from the tax-qualification condition to provide a cash-or-deferred arrangement as an eligible automatic contribution arrangement looks not to when the plan was established, but rather to when the “qualified cash or deferred arrangement” was established. http://uscode.house.gov/view.xhtml?req=(title:26 section:414A edition:prelim) OR (granuleid:USC-prelim-title26-section414A)&f=treesort&edition=prelim&num=0&jumpTo=true Peter Gulia PC Fiduciary Guidance Counsel Philadelphia, Pennsylvania 215-732-1552 Peter@FiduciaryGuidanceCounsel.com
C. B. Zeller Posted November 27, 2024 Posted November 27, 2024 With regard to question 1, the rule is under treas. reg. 1.401(k)-3(e)(2) which says that if you are adding a 401(k) feature to a profit sharing plan for the first time, it can be safe harbor for the first year as long as the 401(k) feature is in effect for at least the last 3 months of the year. For a calendar-year plan, that means the 401(k) feature must be effective no later than October 1st. Quote a cash or deferred arrangement will not fail to satisfy the requirement of this paragraph (e) if it is added to an existing profit sharing, stock bonus, or pre-ERISA money purchase pension plan for the first time during that year provided that- (i) The plan is not a successor plan; and (ii) The cash or deferred arrangement is made effective no later than 3 months prior to the end of the plan year. https://www.ecfr.gov/current/title-26/part-1/section-1.401(k)-3#p-1.401(k)-3(e)(2) ugueth 1 Free advice is worth what you paid for it. Do not rely on the information provided in this post for any purpose, including (but not limited to): tax planning, compliance with ERISA or the IRC, investing or other forms of fortune-telling, bird identification, relationship advice, or spiritual guidance. Corey B. Zeller, MSEA, CPC, QPA, QKA Preferred Pension Planning Corp.corey@pppc.co
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