The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.
A recent call with a financial advisor from Illinois is representative of a common inquiry related to safe harbor plans. The advisor asked:
“Although it is already November, can my client amend her traditional 401(k) plan to be a safe harbor plan for 2020?”
Highlights of the Discussion
Yes, but she must hurry. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 relaxed the deadline for amending a 401(k) plan to add a safe harbor nonelective contribution.
Under Section 103 of the SECURE Act, plan sponsors may amend their plans to add a 3% safe harbor nonelective contribution at any time before the 30th day before the close of the plan year.
Furthermore, amendments after that time would be allowed if the amendment provides:
- a nonelective contribution of at least 4% of compensation for all eligible employees for that plan year; and
- the plan is amended no later than the close of following plan year.
Conclusion
Thanks to the SECURE Act, 401(k) plan sponsors have more flexibility to amend their plans for safe harbor status. Plan sponsors who are failing their actual deferral percentage (ADP) tests for the year may find this type of plan amendment attractive as a correction measure.
Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.
©2020, Retirement Learning Center, LLC. Used with permission.
