Many ESOP companies make a safe harbor matching or discretionary contribution to their ESOP or 401(k) plan. In order to satisfy the safe harbor requirements an annual safe harbor notice must be provided to the participants. The notice must be provided between 30 and 90 days before the first day of the plan year, and employees who become eligible after the notice period must receive the notice by their date of eligibility. Since December 1 is 30 days prior the start of December 31, 2009 plan year, today is effectively the safe harbor notice deadline for many plans.
If you are still not sure if you will be providing a safe harbor contribution, 401k safe harbor for 2009? Maybe yes, maybe no discusses how you can provide a conditional notice and how the safe harbor match can be stopped during the plan year:
The notice would state that the employer may give a safe-harbor contribution for the following year. And then no later than 11 months later, the employer must provide another notice indicating that the Safe Harbor has been elected and the 3% contribution will be made for that year.
That's for the 3% Safe Harbor contribution across the board. But what about the Safe Harbor match: can it be stopped during the plan year? The answer is yes by providing a notice to the employees at least 30 days before the contributions are to be stopped.
And here's two important matters that are part of this discussion:
- There must be the proper plan documentation.
- The 401(k) discrimination tests must be provided for the entire plan year.
Actually, there's one more important consideration - your employee's expectations. Go beyond the formal notice requirements when communicating with your employees.
If your 401(k) plan has an automatic enrollment feature and/or uses a qualified default investment alternative (QDIA), separate notice(s) must also be provided by December 1.
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