"Effective Opportunity" to defer and new SH plan

Anyone have experience with an IRS audit or a citation on what are facts and circumstances around providing the 'effective opportunity' for a participant to defer?

Hypothetically: we have a client who will sign a new plan document with SH basic match on 9/30/19.  The recordkeeper chosen by the client has previewed that it will likely take 60 days to set up the new plan and to provide enrollment materials to the participants.

So the participants will likely only have 1 month of match.  Of course the owner will max out.  So the plan will be in existence for 3 months, but...

Again, i'd really appreciate anyone who's been challenged by the IRS on this point (if anyone!), or if you have a citation that says more than  "Whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances" 1.401k-1(e)(2)(ii)

And i don't think this is an EPCRS issue, as the reason for the  Employee Elective Deferral failure is NOT due to the plan improperly excluding anyone. EPCRS App A .05(10)

Anybody??

I think you are looking at the wrong issue.  The plan is adopted on 9/30. When it is adopted, the employees have the right to defer at that time.  Your problem is one of getting the accounts established (one has to question why so long, but that is another issue). The employees can start deferring with the first payroll after 9/30. There is no reason why a deferral election form could not be produced immediately and money withheld that will be matched later.  The only problem is a place to put the money.  Why not open an account in the name of the plan in the bank (it can be a money market account) that will hold the funds until the more formal investments are chosen and made available? Then, those warehoused funds would be moved into the appropriate investment.  I think you are playing with fire if the employees only really have 30 days to make deferrals, and that is not going to justify the safe harbor aspect of the plan, IMHO.

And if the plan's administrator would use a temporary investment, the communications must explain that a participant lacks a power to direct investment until the later recordkeeping services begin.  Not the happiest way to begin a plan.

Thanks, guys, you're both hitting on exactly why the plan fiduciary WOULDN'T want to open a temporary account.  Hypothetically, the fiduciary is saying it's within his administrative discretion to choose an investment provider and the soonest administratively feasible enrollment date will be 12/1.   And that in the fiduciary's opinion, this provides effective availability to the 1/1/19 plan effective, adopted 9/30/19.

Maybe another way to ask the real question: do we have audit experience or citations on 'facts and circumstances' deference with the SH 3 month plan year requirement?

Maybe another way to ask the question is: what do you guys really do with these last minute SH deadline plans? 

I agree you are looking in the wrong place. The reg you cited deals with the frequency of deferral elections.  You need to look at 1.401(k)-3(e)(2).  The initial plan year for a new safe harbor plan (assuming they are not a successor plan and not a newly established employer) must be at least 3 months long.  In addressing the similar situation of adding a CODA to a PS plan, it specifically says the CODA must be in effect for at least 3 months.  If you look at the definition of "plan" in 1.401(k)-6 and follow it through, I think that a 3 month plan year also means the CODA must be in effect for 3 months.  What you are describing is a CODA in effect for one month.  So, it would not be safe harbor.

In that situation, we would get the plan up and going by 10/1/19, or it would not be safe harbor until 1/1/2020. 

Agree with all the advice. Need to find a new RK or choose a pooled investment plan for the start and switch to participant directed at some point in the future.

Or you could allow the deferrals on 10/1, and just hold them until the recordkeeper is ready, and add lost earnings.  Not ideal but nothing in this situation is ideal.

4 minutes ago, Bird said:

Or you could allow the deferrals on 10/1, and just hold them until the recordkeeper is ready, and add lost earnings.  Not ideal but nothing in this situation is ideal.

Also a reasonable possibility, but the deferral ability as of 10/1 is critical otherwise you don't have a SH plan for that year.