In response to the economic downturn caused by the COVID-19 public health crises, the IRS published Notice 2020-52, providing temporary relief for plan sponsors of 401(k) and 403(b) safe harbor plans that reduce or suspend safe harbor contributions mid-year.
Generally, in order to cease or suspend safe harbor contributions mid-year, a plan sponsor must either be suffering an “economic loss” or their safe harbor notice must contain language stating that safe harbor contributions may be reduced or suspended during the plan year.
The Notice temporarily waives the above requirements for plan sponsors that adopt or have adopted an amendment between March 13, 2020 and August 31, 2020 to reduce or suspend safe harbor matching or nonelective contributions.
In addition, if a plan sponsor did not provide a supplemental safe harbor notice to reflect the reduction or suspension of safe harbor nonelective contributions, the notice requirement is still satisfied if a notice is provided to participants no later than August 31, 2020. Unfortunately, the notice relief does not apply to safe harbor matching contributions.
It is clear from the Notice that a reduction in safe harbor contributions for highly compensated employees (“HCEs”) is only permissible as long as a notice is provided to the HCEs and the HCEs have the opportunity to make a new deferral election.
While the Notice provides some relief from the mid-year safe harbor restrictions, ADP/ACP nondiscrimination testing for the plan year still applies if a plan reduces or suspends safe harbor contributions.
If you have any questions regarding the reduction of safe harbor contributions and any affect it may have on your plan, please contact your Nyhart consultant for more information.