Amending a Safe Harbor Plan Mid-Year

Safe harbor contributions enable plans to skip testing for elective deferrals (401(k) plans) and matching contributions (401(k) and 403(b) plans). Effective January 1, 2015, there are uniform rules to suspend or reduce safe harbor matching contributions and safe harbor non-elective (i.e., non-matching) contributions. (1) The safe harbor notice required before the start of each plan year must include a statement that the employer may reduce or suspend contributions mid-year, subject to 30 days advance notice to employees. (2) Employees must receive a 30 day advance notice before any such cut-back. (3) The employer must amend the plan prior to the date of the cut-back. (4) Employees must get a reasonable time to change their elections after being notified of the cut-back. (5) The plan must provide that the normal ADP and ACP testing rules will apply rather than the safe harbor free pass on testing.

Note: an employer operating at an economic loss as described in IRC §412(c) – check with counsel on that – can reduce or cut back safe harbor contributions even if it did not provide the Notice in (1) but follows steps (2) through (5).