According to the Employee Benefit Research Institute, the number of participants making contributions to defined contribution plans has declined from 65% in 2009 to 60% in 2010, to 59% in 2011, and 58% in 2012 as cited in the 2012 Retirement Confidence Survey. This is no surprise to many small business owners like architects, some of whom have had to downsize and/or go as far as discontinuing or suspending their employer contributions to their Safe Harbor 401(k) plan in recent years.
Coincidentally, Safe Harbor 401(k) plans are going to be subject to a higher level of scrutiny by the Internal Revenue Service (IRS). An IRS phone forum held earlier this year revealed that the IRS will initiate a project to review Safe Harbor 401(k) plans. They will take a closer look at plans that suspended Safe Harbor 401(k) contributions to ensure proper procedural requirements were complied with, including required notice and nondiscrimination testing.
Plan sponsors who discontinued or suspended their employer contributions to a Safe Harbor 401(k) plan for any period of time may want to review their documentation to ensure the requirements were met.
Safe Harbor 401(k) plans are required to allocate an employer contribution to participants and to provide them with an annual notice in order to satisfy the safe harbor provision and avoid the ADP and ACP nondiscrimination tests. Safe Harbor 401(k) plans must also comply with all the usual rules for 401(k) plans (except to the extent the safe harbor rules expressly override them).
For a Safe Harbor 401(k) plan, the employer must make either a Safe Harbor Non-elective Contribution of at least 3% of compensation, or a Safe Harbor Matching Contribution of 100% on the first 3% of Compensation and 50% on the next 2% of Compensation. This contribution must be made to participants outside of any allocation requirements that may be imposed by the plan, such as, a 1,000 hours worked or being employed on last-day of the plan year.
The plan sponsor must give eligible employees a notice explaining their rights and obligations under the Plan within 30 to 90 days before the start of each plan year and, for new employees, prior to becoming eligible to join the plan. This notice will stipulate whether the Safe Harbor 401(k) plan will be providing a non-elective or matching contribution in the upcoming year.
The Members Retirement Program is the only retirement program endorsed by the American Institute of Architects and is managed by AXA Equitable. The Program provides value-added services specifically designed for you. You receive personalized service throughout the process of establishing a retirement plan, continuing for the life of your plan. The full service plan administration is designed to save you time and expense. Plan sponsors have access to an account executive and a plan administration website, plus they will receive newsletters and notifications to help ensure proper procedural requirements are met so their plan remains compliant within all regulatory guidelines.
Call 800-523-1125 or click here if you would like to receive information. All information and consultations are free of charge and are made available to AIA members at no obligation.