My friend, Courtney Mann, sent me this reminder today. His firm is a third party administrator.
As we approach the fourth quarter, we wanted to remind you of an important deadline that is often overlooked.
In order to install a new 401(k) plan with a Safe Harbor feature, the IRS requires a plan year of at least three months. As a reminder, a Safe Harbor provision eliminates discrimination testing on salary deferrals, thus allowing the highly-compensated to defer the maximum without restriction.
In other words, if your clients are in a position to contribute the maximum salary deferral in 2010 — and they employ non-highly compensated staff — then your client may need a Safe Harbor design.
Such a plan would have to be in place by September 30, 2010.
As always, all other plans — such as traditional 401(k), Profit Sharing, and Defined Benefit plans – must be written and adopted by December 31, 2010 to be effective for 2010.