Plan Your Budget Today For 2008 & 2009 Safe Harbor Plans

As we approach the end of the year, now is the perfect time to review your company's retirement plan to determine if there are any design changes you want to make BEFORE 2009 begins. One of the most important design considerations is that of the 401(k) Safe Harbor.

For those companies that currently maintain a 401(k) Safe Harbor plan, reviewing your budget today could save you some financial grief down the road, especially in the current economic conditions. Keep in mind that:

• Safe Harbor Contributions are NOT optional. If your plan has a Safe Harbor provision in it for 2008, the company WILL be obligated to make the required Safe Harbor Contribution by the time the 2008 company tax return is filed, REGARDLESS OF YOUR CASH FLOW SITUATION.
• As you review your projected budget, if you feel the company's cash flow will not allow for the contribution for the 2009 plan year, the Safe Harbor provision must be amended out of the plan document prior to December 21, 2008.
• If the Safe Harbor provision is removed from your plan, the Employee Deferrals will be subject to the ADP testing, and the Employer Matching Contributions (if applicable) will be subject to the ACP testing. This could result in a significant decrease in the amount the Highly Compensated Employees may defer in 2009. You should speak to your Third Party Administrator about the possible impact this change could have on your participants.

For those companies that do not currently maintain a Safe Harbor 401(k) plan, but are considering doing so:

• If you currently have a 401(k) provision in your plan, the Safe Harbor feature may only be added at the START of the next plan year.
• Due to the notices that must be provided to participants 30 days prior to the start of a plan year, any company that wishes to maintain a new Safe Harbor 401(k) provision for 2009 must have the plan documents in place, and the notices provided to the participants by December 1, 2008.
• The Safe Harbor provision will allow the Highly Compensated Employees to defer up to the IRS maximum each year, and not be restricted by what the Non-Highly Compensated Employees defer.

As this is an extremely brief summary of the requirements of stopping, or starting at Safe Harbor 401(k) plan, we suggest you contact your Third Party Administrator as soon as possible to review the impacts on your particular plan.