IRS Provides Limited Window of Opportunity to Eliminate Safe Harbor Contributions for 2020
Plan sponsors of safe-harbor 401(k) plans find it difficult to satisfy the conditions permitting them to amend safe-harbor plans mid-year to reduce or eliminate the employer safe harbor nonelective or matching contribution. They either had to reserve the right to amend the plan in the annual safe harbor notice provided to plan participants or be operating at an economic loss. In addition, in order to make any change to a safe harbor plan mid-year, participants had to be given an advance 30-day notice of the amendment. Recognizing the need for employers to preserve cash during the COVID-19 pandemic, the IRS has temporarily modified the rules (IRS Notice 2020-52) to make it easier to make a mid-year amendment to a safe-harbor 401(k) plan in 2020. Immediate action is required to take advantage of this temporary relief since any mid-year amendment to reduce or eliminate a safe harbor contribution must be made no later than August 31, 2020. The notice provisions still apply, but the notice for safe harbor nonelective contribution plans can be given as late as August 31, 2020. Plans with safe harbor matching contributions must still give notice of the amendment 30 days in advance of its effective date.
More information on this development here.