Employer has an 10/31/99 plan year end. We added 401(k) provisions (safe harbor 401k) effective 7/1/1999. I'm wondering if we have a problem. The regs say that safe harbor is effective for plan years beginning in 1999. Since we tried to do for only part of the plan year (7/1/99-10/31/99) do we have a problem? If so, exactly what?

Are we not really a safe harbor and must pass ADP? If we made the 3% safe harbor nonelective contribution and now have to test for ADP and fail (only by $26.50), can we use the 3% as a QNEC to pass ADP?

Any suggestions?

I don't believe that you are technically a safe harbor plan for the plan year ending 10/31/99. You will have to pass the ADP and you can certainly use the QNEC to do that.

You realize there is something in the regs that in the first year of the 401k, the adp for the non-hce's is assumed to be 3%, so that the hce's could do 5%? Many plans find this to be preferable to the 3% safe harbor. I am uncertain if the effect of a short year on the 3%

I am not sure of Allen Clarke' reasoning for you not having a safe harbor plan. If you provided employees with the notice in a timely manner (like as soon as the 401k amendment was adopted) you would have safe harbor. Am I missing something?