Final Rules Issued on Suspension of Safe Harbor Contributions to 401(k) Plans

Employers often elect to make safe harbor contributions to 401(k) plans to avoid the need to perform ADP/ACP nondiscrimination testing annually. However, circumstances may arise where it is beneficial for the employer to suspend the safe harbor contribution during the plan year. The Treasury and IRS have released final regulations on implementing a suspension of the employer’s safe harbor contribution mid-year. First, a safe harbor contribution may be suspended mid-year if the employer is operating at a loss for the plan year. In the alternative, the safe harbor contribution may be suspended during the plan year for any reason or no reason at all if the employer’s annual safe harbor notice contains a statement that the plan may be amended mid-year to remove the safe harbor contribution requirement. Plans with suspended safe harbor contribution requirements must otherwise satisfy applicable nondiscrimination testing for the plan year.

© 2013 Parsonage Vandenack Williams LLC

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