Relief for Safe Harbor 401(k) Plans

The IRS is providing temporary relief, due to the Coronavirus pandemic, to certain requirements for mid-year amendments to a safe harbor 401(k) or 401(m) plan. IRS Notice 2020-52 expands the ability of an employer to adopt an amendment that that reduces or suspends safe harbor contributions or reduces contributions for highly compensate employees.

Midyear Reductions or Suspensions of Safe Harbor Nonelective Contributions

employee benefit plans cpaA plan that provides safe harbor nonelective contributions will not be treated as failing to meet the safe harbor midyear amendment requirements under Code §§ 401(k) and 401(m) if:

  • The employer adopts a plan amendment to reduce or cease the employer’s safe harbor nonelective contributions between March 13, 2020, and August 31, 2020, AND
  • The adoption date is not later than the effective date of the employer contribution reduction or cessation, AND
  • The employer distributes a supplement safe harbor notice to eligible employees no later than August 31, 2020.

Midyear Reductions or Suspensions of Safe Harbor Matching Contributions

A plan that provides safe harbor matching contributions will not be treated as failing to meet the safe harbor midyear amendment requirements under Code §§ 401(k) and 401(m) if:

  • The employer adopts a plan amendment to reduce or cease the employer’s safe harbor matching contributions between March 13, 2020, and August 31, 2020, AND
  • The adoption date is not later than the effective date of the employer contribution reduction or cessation, AND
  • The required annual safe harbor notice contained statements about the right to amend the plan midyear to reduce or suspend the safe harbor and any such reduction or suspension would not apply until at least 30 days after notice, AND
  • The employer distributes a supplement notice to eligible employees at least 30 days in advance of the effective date of the matching contribution reduction or cessation.

Notice 2020-52 does not provide relief regarding the timing of supplemental notices for a mid-year reduction or suspension of safe harbor matching contributions under Treas. Reg. §1.401(k)-3(g)(1)(i) or Treas. Reg. §1.401(m)-3(h)(1)(i). The IRS says this is because matching contribution levels communicated to employees directly affect employee decisions regarding elective contributions (and, if applicable, employee contributions).

Reducing Contributions Made to Highly Compensated Employees

The IRS requires that when a safe harbor plan is amended midyear to reduce or eliminate the employer contribution allocations to highly compensated employees (HCEs):

  • An updated safe harbor notice must be distributed to the HCEs affected by a midyear plan amendment AND
  • The affected HCEs must be afforded an opportunity to change their elective deferral elections.

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