May a safe harbor 401(k) plan be terminated with a short plan year during 2005? E-mail Alert 2005-11/Rev. 06/09/05 |
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| Before the release of the 401(k) and 401(m) final regulations there had been no authority permitting a short plan year for a safe harbor 401(k) plan in its year of termination. The final 401(k) regulations do not become effective until plan years starting after December 31, 2005. However, a provision in the final 401(k) regulations stipulates that they may be applied for plan years that end after December 29, 2004 (and before 2006) provided that all provisions of the final regulations are implemented by the adopting plan. Thus, a safe harbor 401(k) plan may be terminated using a short plan year in 2005 provided newly implemented rules for terminating a safe harbor plan with a short plan year are followed. |
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| ● | Safe harbor 401(k) short plan year exceptions to the full 12-month plan year requirement due to plan termination are permitted provided that in the year the plan terminates either: |
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| ○ | the termination is in connection with a merger or acquisition involving the employer, or the employer has incurred a substantial business hardship as defined in IRC section 412(d) and the safe harbor contribution has been funded through the termination date, or |
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| ○ | the employer makes the safe harbor contribution for the short plan year, provides a notice of the change to employees, and the plan passes the ADP test and if also applicable the ACP test. | |
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