Many 401(k) plans are “safe-harbor” plans, meaning that the plan sponsor employer commits to providing an annual match or 3% contribution for participants in exchange for avoiding annual non-discrimination testing and possible burdensome corrections.
In addition to the contribution requirement, safe harbor plans require that participants receive notice in advance of each plan year in which a safe harbor contribution will be made. A safe harbor contribution cannot be reduced or eliminated mid-year unless the employer reserved the right to do so in the preceding year.
In response to the challenges presented by COVID-19, the IRS issued Notice 2020-52. The temporary rule allows mid-year suspension of safe harbor contributions without advance notice to plan participants. This will allow employers with safe harbor plans to amend their plans to eliminate the required 401(k) contribution in 2020 – potentially welcome savings at a critical time.
The relief is not automatic – a plan amendment must be signed by August 31. Notice must also be provided to plan participants by August 31. The temporary rule does not apply to safe harbor plans that use a “match”. An employer subject to an annual safe harbor plan contribution requirement should contact its plan document provider or ERISA counsel to complete the required amendment and notices.
If you have questions relating to employment or benefit matters, please contact a Kerr Russell attorney.
Liam K. Healy focuses his practice on helping clients maintain compliance with the myriad of state and federal tax laws and regulations that govern individuals and businesses. A particular focus of Liam’s practice is in the area of employee benefits and ERISA. Liam specializes in designing pension and executive compensation plans to benefit business owners and executives. His practice includes drafting and reviewing deferred compensation agreements, severance agreements and non-compete agreements, representing employers in multi-employer plan collection and withdrawal liability matters.
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