how to explain switch from profit sharing to safe harbor 401k

K_Lynch

Hi everyone, just trying to get some quick advice before we all head home for the weekend.
Plus, my COO obviously like to spring things on me at the last minute, as this is due on Monday.

Anyway, the decision has been made to switch from a long established Profit Sharing Plan to a “Safe Harbor” 401k plan. I would like the easiest language possible to announce this switch to the staff. There will be no change to our current profit sharing account; however there will be no further contributions. The ER will now contribute 3% to all eligible staff in the 401k, whether the ee contributes at all. Vesting is immediate, and if I can get the point across the right way, it will be a smooth transition. I appreciate any help I can get on this memo.
Thanks everyone.

lukkieseven

We did the same thing in 2002 (changing from a defined contribution plan to a 401k). We announced this at an All Staff meeting, at which time we explained our reasons for the switch. However, we followed it up with a memo, which stated:


"As discussed at our last All Staff meeting, we are writing to provide you with important information about your Defined Contribution Pension Plan (the "Plan"). The board of directors has determined that future monthly contributions on your behalf will cease effective 12/31/01. Effective 1/1/02 this plan will be amended to a 401(k) Profit Sharing Plan. Employer contributions will continue to be made to the 401(k) Profit Sharing Plan, but on an annual basis, and only to eligible participants who are employed on the last day of the plan year. Vesting will be the same as before, and forfeitures will revert to the Employer.

The cessation of monthly contributions will not affect the vested amounts currently held in your account under the plan and all moneys held in the plan fo ryour account will be transferred to the 401(k) Profit Sharing Plan."

Hope this gives you some help. (by the way - we contribute 5% of gross wages to the 401(k).)