IRS Issues Guidance on Mid-Year Amendments to Certain Safe Harbor Plans
July 1, 2020
As plans contemplate changes to safe harbor plans in the midst of the COVID-19 pandemic, the IRS has provided some guidance and relief for certain plans.
The IRS on June 29 issued guidance that clarifies the requirements that apply to a mid-year amendment to a safe harbor 401(k) or 401(m) plan that reduces only contributions made on behalf of highly compensated employees HCEs. The guidance is contained in Notice 2020-52.
Under Treas. Reg. §1.401(k)-3(a), contributions made on behalf of HCEs are not included in the definition of safe harbor contributions. Accordingly, says the IRS, a mid-year change that reduces only contributions made on behalf of HCEs is not a reduction or suspension of safe harbor contributions described in Treas. Reg. §1.401(k)-3(g) and Treas. Reg. §1.401(m)-3(h).
However, the IRS in Notice 2020-52 says that a mid-year change that reduces only contributions made on behalf of HCEs would be a mid-year change to a plan’s required safe harbor notice content for purposes of Notice 2016-16. Therefore, in order to satisfy the notice and election opportunity conditions of Notice 2016-16, an updated safe harbor notice and an election opportunity must be provided to HCEs to whom the mid-year change applies, determined as of the date of issuance of the updated safe harbor notice.
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