As part of their ongoing efforts to provide economic and compliance relief during the COVID-19 pandemic, the IRS and Treasury Department have given certain sponsors of safe harbor 401(k) plans a new, temporary window until August 31, 2020 to take action to reduce or suspend otherwise required safe harbor contributions for 2020. Employers facing economic hardship and/or compliance challenges due to disruptions to their business operations may wish to consider amending their plans by the August 31 deadline to minimize or suspend contributions to their safe harbor plans this year.
In Notice 2020-52, the IRS announced that employers may reduce or suspend their matching or non-elective (minimum 3% of pay) contributions to their safe harbor 401(k) plans without adhering to the typical rules for such mid-year changes. Typically, in order to reduce or suspend safe harbor contributions in the middle of a plan year, the 401(k) regulations require that a plan sponsor either: (1) operate at an “economic loss” for the year, as defined in Section 412 of the federal tax code; or (2) include in the plan’s annual safe harbor notice (required only for safe harbor matching plans for plan years after December 31, 2019) a statement that the plan (i) may be amended during the plan year to reduce or suspend the employer’s safe harbor contributions, and (ii) that such a reduction or suspension will not apply until at least 30 days after all eligible employees are provided notice of the reduction or suspension. These ordinary requirements will be waived for safe harbor plans that are amended by August 31, 2020.
The Notice also provides that for safe harbor plans featuring the minimum 3% non-elective contribution (not matching plans), the 30-day advance notice of an actual reduction or suspension is not required if:
- the supplemental notice is provided to eligible employees no later than August 31, 2020; and
- the plan amendment that reduces or suspends safe harbor non-elective contributions is adopted no later than the effective date of the reduction or suspension of safe harbor non-elective contributions.
Notice 2020-52 states that it applies similarly to Section 403(b) retirement plans.
Should you have any questions regarding the above, please contact your Carmody attorney or any members of the Carmody team.
Giovanna T. Weller
(203) 575-2651; email@example.com
Domenico Zaino, Jr.
(203) 578-4270; firstname.lastname@example.org
Stephanie E. Cummings
(203) 575-2649; email@example.com
Maureen Danehy Cox
(203) 575-2642; firstname.lastname@example.org
(203) 578-4284; email@example.com
Sarah S. Healey
(203) 578-4225; firstname.lastname@example.org
Lauren M. Hopwood
(203) 784-3104; email@example.com
Timothy S. Klimpl
(203) 252-2683; firstname.lastname@example.org
Howard K. Levine
(203) 784-3102; email@example.com
Mark F. Williams
(203) 575-2618; firstname.lastname@example.org
Sherwin M. Yoder
(203) 784-3107; email@example.com
This E-Alert was principally drafted by Timothy S. Klimpl. Tim recently joined Carmody Torrance Sandak and Hennessey LLP as a Counsel in the firm’s Business and Personal Services Group, where he represents clients in employee benefits, executive compensation, employment and related tax matters. Tim is admitted to practice in Connecticut and New York.