Safe Harbor Plan Amendment

Took over a plan that the document excludes highly compensated employees from receiving the safe harbor match.  The plan now wants to change and give the safe harbor match to everyone.  Can I amend mid year or do I need to wait until January 1, 2020.  Thanks.

The document may permit you to allocate the SH MC to the HCE's anyway.  Read all the notes on the AA and the relevant sections of the BPD.  You may find what you are looking for.  If you do, you won't need to amend at all.  If you don't,  you will need to amend the plan for next year.

Surprisingly, Notice 2016-16 doesn't mention amending mid-year to expand the group eligible for safe harbor contributions.  It does allow a mid-year amendment to narrow the group eligible for the SH, provided it only applies to those not currently eligible for the SH (III D 2).  If you can narrow the group mid-year, you should also be able to expand it.  The only informal guidance I'm aware of on a mid-year amendment to expand the group eligible for the SH was Q 37 at the 2012 ASPPA Annual Conference.  The question asked about amending a salaried only SH plan mid-year to included hourly employees. The IRS response was that it was ok as long as those currently eligible were not affected.  

Under Notice 2016-16, if it's not prohibited (i.e., if it is not one of the excluded categories of changes after the first paragraph of Section III(B), and not included in the list of prohibited changes in III(D), it's permissible. The proposed change appears to be covered by the general language of the first paragraph of Section III(B) of Notice 2016-16 as permissible. You would need to meet the notice requirements.

There's also an argument that it's permissible under the regs, but that's more complicated and unnecessary given Notice 2016-16.

An IRS Notice must yield to any [Treasury] regulation to the contrary (except when the IRS is exercising authority granted to it by a regulation, such as when granting limited administrative 411(d)(6) relief in circumstances described by a regulation). Notice 2016-16 states in a couple places that nothing in that Notice contravenes anything in the 401(k) safe harbor regulation (perhaps only in footnotes, but it is in there somewhere). So, if the regulation were to prohibit such an expansion, then the Notice's silence in that context could not be viewed (IMHO) as giving permission.Thus, I would not rule out examining the regulation first and then proceeding to the Notice.

Under the regulation, HCEs do not need to be in the ADH SH component of the plan in order for the plan to meet the ADP requirements via an ADP safe harbor, so arguably choosing to expand the group entitled to that type of contribution would include the ability to adopt a midyear amendment to include HCEs. Such contributions would go into the plan's "safe harbor account" and thus be fully vested.  Regulation 1.401(k)-3 explicitly acknowledges that HCEs can be in the overall ADP SH arrangement. So despite taking another path, I get to the same destination expressed above.

As noted by JackS, some [preapproved] plans go so far as to exclude HCEs on the AA at the outset, but contain an operational add-back (either on the AA or in the BPD), meaning the employer can choose to include the HCEs at some later time without an amendment. This supports the theory that the proposed midyear amendment would be acceptable (and unnecessary if the plan so states). The reverse, though, would not work since the promise of an ADP SH to an HCE at the outset would be a 411(d)(6) protected benefit for the HCE, and the employer could not operationally choose not to fund a promised ADP SH contribution to HCEs except on a prospective basis. (Perhaps the 30-day notice would also be required even if only HCEs were affected by a midyear amendment to reduce or cease ADP SH contributions, but since that question is not being posed, I decline to form an opinion on that.)

Doc Ument, I was going to also include the argument in your second paragraph, which I think is sound, but in light of the clarity of Notice 2016-16, which is directly on point, I figured didn't need to. Note that Treas. reg. 1.401(k)-3(e)(1) specifically provides that IRS may expand in "guidance of general applicability published in the Internal Revenue Bulletin" the types of amendments that can be made to safe harbor plans beyond the exceptions contained in the regs, so I think we're ok relying on Notice 2016-16.