Start Up 3% Nonelective Safe Harbor

With the new Secure Act provisions for 3% non-elective plans, is a new 3% safe harbor non-elective plan still required to be adopted by October 1 (assuming a calendar year end).  

Could the plan be adopted for December 1, 2020 as a 3% non-elective?

What if the plan was adopted on December 1, 2020 as a non-safe harbor plan with a calendar year end, but amended in 2021 to be a 4% safe harbor? 

I guess what I'm really asking is, if the plan is a non-elective safe harbor, must the first year still be at least 3 months long?

Thanks very much.

The SECURE Act changed the timing requirements for retroactive adoption of the safe harbor non-elective provisions.  I don't see anything in it that changed the rules for the initial plan year.  So, I think the initial plan year must be at least 3 months long, unless it is a newly established employer that qualifies for a shorter initial plan year under 1.401(k)-3(e)(2).  Note that the definition of "employer" used includes members of controlled groups and affiliated service groups.

Thank you Kevin.  I forgot to respond to my own post that I found the same answer that you concluded.

All, what if the plan starts/is adopted December 1 and deferrals are only available for that month of the year. However, the plan is retroactively effective 1/1 and allows PS and SHNEC to be made for the entire 12 month period. Would that check all the boxes?

43 minutes ago, Bill Presson said:

All, what if the plan starts/is adopted December 1 and deferrals are only available for that month of the year. However, the plan is retroactively effective 1/1 and allows PS and SHNEC to be made for the entire 12 month period. Would that check all the boxes?

There was an ARA write up early this year that said further IRS guidance needed, but assume that the 3 month requirement is still there.  The 3 month policy is meant to give all participants an opportunity to make meaningful deferrals, I don't think that changes with SECURE. The have started to address SECURE issues, so we might get something closer to the 3 month deadline.  

For what its worth I think Bill P. is on to something.  I think December 1 would be the drop dead date for a 3% non-elective safe harbor plan if made effective retro to the beginning of the year.

3 hours ago, Bill Presson said:

All, what if the plan starts/is adopted December 1 and deferrals are only available for that month of the year. However, the plan is retroactively effective 1/1 and allows PS and SHNEC to be made for the entire 12 month period. Would that check all the boxes?

With the current rules, I don't see that working.  What you describe is effectively the same situation as adding an ADP safe harbor to an existing profit sharing plan.  1.401(k)-3(e)(2) says:
 

Quote

 

... Similarly, 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.

 

That's more clear than the 3 month plan year requirement.

I found my answer in some presentation material that Sal Tripodi provided in a webinar that he did, I think for FT William, on the SECURE Act.  He provides an example of a new calendar year end plan adopted 11/1/2021 with a retroactive date to 1/1/2021 (401(k) portion effective 11/1/2021).  Sal offers that the plan could not be a safe harbor plan for 2021 since the 401(k) portion is less than 3 months, regardless of whether the safe harbor is a match or nonelective.

Makes sense.  The intention of the 3 months is to allow everyone the chance to make 3 months of deferrals regardless of a match or 3% non-elective.  Without the 3 month requirement I guess an owner could set up the plan for 12/31 and give himself a bonus to defer from and no one else gets that opportunity.

41 minutes ago, Kevin C said:

With the current rules, I don't see that working.  What you describe is effectively the same situation as adding an ADP safe harbor to an existing profit sharing plan.  1.401(k)-3(e)(2) says:
 

That's more clear than the 3 month plan year requirement.

Thank you, KevinC!

Bringing this back up. During the end of an ASPPA video hangout yesterday, this subject came up. There was quite a bit of disagreement. I felt (after the discussion above) that the 3 month requirement was still in place. Others (including @Larry Starr) were pretty firmly in the camp that the SECURE Act changed the law and that was no longer required. Would love to see some more discussion because I think this is very important.

I'm leaning on the 3 month requirement side.  The intention is to make the plan a safe harbor plan, which requires that participants have at least 3 months to defer.  Otherwise it's just a 401(k) plan with a 3% or 4% profit sharing contribution.

33 minutes ago, Gilmore said:

I'm leaning on the 3 month requirement side.  The intention is to make the plan a safe harbor plan, which requires that participants have at least 3 months to defer.  Otherwise it's just a 401(k) plan with a 3% or 4% profit sharing contribution.

I agree. I haven't found anything that eliminates 1.401(k)-3(e) which requires at least 3 months for a newly established plan (except for a brand new employer).