The Treasury Department has issued final regulations regarding the ability to suspend employer contributions to "safe harbor" 401(k) and 403(b) plans during a plan year. Employers that maintain safe harbor plans should consider revising their safe harbor notices as soon as possible to reflect the new rules. This is particularly time-sensitive for employers that will be distributing 2014 safe harbor plan notices in November 2013.

Safe harbor 401(k) and 403(b) plans are exempt from certain annual nondiscrimination tests (known as the ADP and ACP tests), provided that certain minimum employer contribution, vesting, and notice requirements are satisfied. The minimum employer contributions can take the form of a safe harbor matching contribution or a safe harbor nonelective contribution. Because a safe harbor notice must be distributed before the beginning of the plan year, the terms of the plan that are described in the notice, including the minimum employer contributions, generally cannot be changed during the plan year.

Previously, employers could suspend minimum employer contributions to a safe harbor plan in the middle of a plan year in two limited circumstances. Safe harbor matching contributions could be suspended upon 30 days' advance notice, while safe harbor nonelective contributions could be suspended in the event of a substantial business hardship (with 30 days' advance notice).

Under the new Treasury regulations, employers are permitted to suspend minimum matching or nonelective contributions to safe harbor plans in the middle of a plan year under either of the following scenarios: 

  • The employer is operating at an economic loss.
  • The safe harbor notice provides that minimum employer contributions may be reduced or suspended during the plan year.

In either case, 30 days’ advance notice is required before the reduction or suspension of contributions. The change becomes effective immediately for safe harbor nonelective contributions and is effective for safe harbor matching contributions for plan years beginning on or after January 1, 2015.

If you have questions about the regulations or how they may affect your retirement plan, please contact Brian M. Pinheiro at 215.864.8511 or pinheiro@ballardspahr.com, or Robert S. Kaplan at 215.864.8417 or kaplanrs@ballardspahr.com. 


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