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Reducing or Suspending Safe Harbor Contributions Mid-Year

June 17, 2014

Beginning with plan years after 2014, under Treasury Regulation 9641, 401(k) safe harbor matching contributions may be reduced or suspended mid-year under the same circumstances that apply to safe harbor non-elective contributions. This is allowed if you are “operating at an economic loss” or you provided notice to participants before the beginning of the plan year that there exists the possibility contributions may be reduced or suspended mid-year. This amendment could not be effective until at least 30 days after supplemental notice has been given to the participants.

To actually reduce or suspend contributions, the following procedural requirements must be followed:

  • Formally adopt a plan amendment
  • Provide a supplemental notice to participants explaining the change and the effective date and allow them time to change their deferral elections if they so desire
  • Perform all necessary annual discrimination testing
  • Make safe harbor contributions through the date of amendment

As a result of this new regulation, plan sponsors may want to include notice of potential reduction or suspension of contributions in all annual participant notices.

If you have additional questions, please contact Samantha Zahran at 860.570.6332 szahran@blumshapiro.com.
 

 

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