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IRS Provides Guidance to Safe Harbor Retirement Plans Regarding Mid-Year Amendments

Jul 6, 2020

On June 29, the IRS issued Notice 2020-52 (“Notice”) providing clarification regarding the requirements that apply to a reduction or suspension of contributions to a safe harbor 401(k) plan, which will solely reduce contributions to the plan made by a plan sponsor on behalf of highly compensated employees (“HCEs”), as well as providing temporary relief related to the impact of the COVID-19 pandemic for plan sponsors adopting mid-year amendments to their safe harbor plans that would reduce or suspend contributions for all plan participants.

Application to HCEs

The Notice states that under the regulations applicable to safe harbor 401(k) plans, contributions made to a plan on behalf of HCEs are not considered safe harbor contributions and as a result a mid-year change by a plan sponsor that reduces or suspends contributions made on behalf of HCEs is not a reduction or suspension of safe harbor contributions that would require a plan amendment as described under the regulations.  However, under the Notice, IRS has clarified that such a change requires that the affected HCEs receive an updated safe harbor notice and an opportunity to change their salary deferral elections as outlined in IRS Notice 2016-16.

Temporary Relief Applicable to Mid-Year Plan Amendments

For plan sponsors that want to adopt a plan amendment to suspend or reduce contributions for all plan participants (not solely HCEs), the Notice provides temporary relief related to the impact of the COVID-19 pandemic from the requirements that the plan sponsor either (1) is operating at an economic loss for the plan year, or (2) has included in the plan’s safe harbor notice (provided before the beginning of the plan year) for the plan year a statement that (a) the plan may be amended during the plan year to reduce or suspend the safe harbor contributions and (b) the reduction or suspension will not apply until at least 30 days after all eligible employees are provided notice of the reduction or suspension.  This relief applies to plan amendments adopted between March 13, 2020 and August 31, 2020.

The Notice further provides that if a plan amendment that reduces or suspends safe harbor nonelective contributions (also known as safe harbor profit sharing contributions) during a plan year is adopted between March 13, 2020, and August 31, 2020, then the plan will not be treated as failing to satisfy the requirement to provide plan participants with a supplemental notice at least 30 days prior to the effective date of the suspension or reduction in contributions provided the following requirements are met: 

  1. The supplemental notice is provided to plan participants no later than August. 31, 2020, and
  2. The plan amendment that reduces or suspends safe harbor nonelective contributions is adopted no later than the effective date of the reduction or suspension of safe harbor nonelective contributions.

Finally, the Notice does not provide relief for 30-day notice requirement for supplemental notices related to a mid-year reduction or suspension of safe harbor matching contributions. The Notice states that this is because matching contribution levels communicated to employees directly affect employee decisions regarding elective contributions (and, if applicable, employee contributions).

Application to 403(b) Plans

The Notice applies to 403(b) plans that utilize the Section 401(m) safe harbor rules under IRC Sec. 403(b)(12).


To the credit of the IRS, they have been extremely diligent in providing plan sponsors with both guidance and relief in this very difficult situation.

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Peter Alwardt

Peter Alwardt is a Partner and the National Tax Leader of Employee Benefit Plans, specializing in employee benefits, tax and ERISA issues for domestic and international clients. He is a member of the American Institute of Certified Public Accountants and NY State Society of CPAs.

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