On June 29, 2020, the IRS released Notice 2020-52, clarifying the requirements for mid-year amendments to safe harbor 401(k) plans. The notice is about mid-year amendments to safe harbor plans which reduce or suspend employer contributions. It prescribes certain requirements and makes available temporary relief for safe harbor notice requirements.
Three circumstances are addressed:
- Mid-year plan amendment to reduce or suspend employer contributions for Highly Compensated Employees (HCEs) only. An updated safe harbor notice and election opportunity must be provided to HCEs affected by the mid-year amendment.
- Mid-year plan amendment to reduce or suspend safe harbor contributions (matching or non-elective) for all participants. If an amendment is adopted between March 13, 2020 and August 31, 2020, the plan will not be treated as failing to satisfy the normal requirement that the employer either (i) is operating at an economic loss for the plan year or (ii) previously included in the plan’s safe harbor notice for the plan year a statement that (a) the plan may be amended during the plan year to reduce or suspend the safe harbor contributions and (b) the reduction or suspension will not apply until at least 30 days after all eligible employees are provided notice of the reduction or suspension.
- Mid-year amendments to reduce or suspend safe harbor non-elective contributions. To achieve temporary relief, two criteria must be met:
- Amendment must be adopted between March 13, 2020 and August 31, 2020, but no later than the effective date of the reduction or suspension of safe harbor non-elective contributions.
- Supplemental safe harbor notice must be provided to eligible employees no later than August 31, 2020.