possible change to safe harbor plans

the following passed the House (as part of the Family Savings Act)

basically, no more notice needed if 3% safe harbor. why o why can't this be effect now so I wouldn't have to worry about notices this month!!!!!!!!)

plan can be amended anytime during the year

plan can be amended after the end of the year (before deadline for refunds) if increased to 4%

 

 

SEC. 102. RULES RELATING TO ELECTION OF SAFE HARBOR 401(k) STATUS.

(a) LIMITATION OF ANNUAL SAFE HARBOR NOTICE TO MATCHING CONTRIBUTION PLANS.—

(1) IN GENERAL.—Section 401(k)(12)(A) of the  Internal Revenue Code of 1986 is amended by striking ‘‘if such arrangement’’ and all that follows and inserting ‘‘if such arrangement—

(i) meets the contribution requirements of subparagraph (B) and the notice requirements of subparagraph (D), or

(ii) meets the contribution requirements of subparagraph (C)(2) AUTOMATIC CONTRIBUTION ARRANGEMENTS.—Section 401(k)(13)(B) of such Code is amended by striking ‘‘means’’ and all that follows and inserting ‘‘means a cash or deferred arrangement—

(i) which is described in subparagraph (D)(i)(I) and meets the applicable requirements of subparagraphs (C) through (E), or

(ii) which is described in subparagraph (D)(i)(II) and meets the applicable requirements of subparagraphs (C) and (D).

(b) NONELECTIVE CONTRIBUTIONS.—

Section 20 401(k)(12) of such Code is amended by redesignating sub21 paragraph (F) as subparagraph (G), and by inserting

after subparagraph (E) the following new subparagraph:

(F) TIMING OF PLAN AMENDMENT FOR EMPLOYER MAKING NONELECTIVE CONTRIBUTIONS.—

(i) IN GENERAL.—Except as provided in clause (ii), a plan may be amended after the beginning of a plan year to provide that the requirements of subparagraph (C) shall apply to the arrangement for the plan year, but only if the amendment is adopted—

(I) at any time before the 30^th day before the close of the plan year, or

(II) at any time before the last day under paragraph (8)(A) for distributing excess contributions for the plan year.

(ii) EXCEPTION WHERE PLAN PROVIDED FOR MATCHING CONTRIBUTIONS.—

Clause (i) shall not apply to any plan year if the plan provided at any time during the plan year that the requirements of subparagraph (B) or paragraph (13)(D)(i)(I) applied to the plan year.

(iii) 4-PERCENT CONTRIBUTION REQUIREMENT.—Clause (i)(II) shall not apply to an arrangement unless the amount of the contributions described in subparagraph (C) which the employer is required to make under the arrangement for the plan year with respect to any employee is an amount equal to at least 4 percent of the employee’s compensation.’’.

(c) AUTOMATIC CONTRIBUTION ARRANGEMENTS.—

Section 401(k)(13) of such Code is amended by adding at the end the following:

(F) TIMING OF PLAN AMENDMENT FOR  EMPLOYER MAKING NONELECTIVE CONTRIBUTIONS.—

(i) IN GENERAL.—Except as provided in clause (ii), a plan may be amended after the beginning of a plan year to provide that the requirements of subparagraph (D)(i)(II) shall apply to the arrangement for the plan year, but only if the amendment is adopted—

(I) at any time before the 30^th  day before the close of the plan year, or

(II) at any time before the last day under paragraph (8)(A) for distributing excess contributions for the plan year.

(ii) EXCEPTION WHERE PLAN PROVIDED FOR MATCHING CONTRIBUTIONS.—

Clause (i) shall not apply to any plan year if the plan provided at any time during the plan year that the requirements of subparagraph (D)(i)(I) or paragraph (12)(B) applied to the plan year.

(iii) 4-PERCENT CONTRIBUTION REQUIREMENT.—Clause (i)(II) shall not apply to an arrangement unless the amount of the contributions described in subparagraph (D)(i)(II) which the employer is required to make under the arrangement for the plan year with respect to any employee is an amount equal to at least 4 percent of the employee’s compensation.’’.

(d) EFFECTIVE DATE.—The amendments made by this section shall apply to plan years beginning after December 31, 2018.

 

 

 

DESCRIPTION OF H.R. 6757, THE “FAMILY SAVINGS ACT OF 2018”

 

 

Delay in adopting provisions for nonelective 401(k) safe harbor

Under the proposal, unless a plan provided at any time during the plan year that 401(k) safe harbor matching contributions applied to the plan year, a plan can be amended to become a nonelective 401(k) safe harbor plan for a plan year (that is, amended to provide the required nonelective contributions and thereby satisfy the safe harbor requirements) at any time before the 30th day before the close of the plan year.

Further, unless a plan provided at any time during the plan year that 401(k) safe harbor matching contributions applied to the plan year, the proposal allows a plan to be amended after the 30th day before the close of the plan year to become a nonelective contribution 401(k) safe harbor plan for the plan year if (1) the plan is amended to provide for a nonelective contribution of at least four percent of compensation (rather than at least three percent) for all eligible employees for that plan year and (2) the plan is amended no later than the last day for distributing excess contributions for the plan year, that is, by the close of following plan year

 

 

Nevertheless, the Family Savings Act’s prospects in the Senate remain very uncertain.

So this would essentially add a new way to correct a failed ADP test, you could retroactively amend the plan to make it 4% safe harbor nonelective for the prior year. Could be cheaper than QNECs in some situations.

I guess it also eliminates the "Maybe we will be safe harbor"

I think RESA would let you adopt a new plan as late as the extended tax return due date with a 4% SH, so I would assume an existing plan could amend to add safe harbor at the same time.  

Did the house bill limit it to amending existing plans or would you be able to adopt a new plan after the end of the year?

From what I understand they will be pushing hard on RESA because it is legacy legislation for Hatch but who knows what the next week will bring