The current year testing method must be used. Refunds of excess contributions: If safe harbor contributions are suspended mid-year, the plan contributions will be subject to the nondiscrimination testing requirements for the entire plan year, including the period of time during which the safe harbor contributions were made. Other Issues for Plan Sponsors to Consider Note that plan sponsors cannot change from the matching contribution safe harbor design to the nonelective design mid-year to take advantage of the more lenient rules. Therefore, for nonelective contribution safe harbor plans only, notice of the suspension may be retroactive. They must notify employees of any suspension by the effective date of the suspension and the notification must be no later than August 31. These plan sponsors may suspend contributions through August 31 without giving 30 days advance notice. Additional Relief for Nonelective Contribution Safe Harbor Plans These requirements have not been waived by the IRS in the temporary relief. Participants must also have an advance opportunity to change their deferral elections, but this is usually not a problem because many plans permit changes on a daily basis. Under the “regular” rules, a suspension of safe harbor contributions cannot be effective until 30 days after participants have received notice of the upcoming suspension-or the date of the plan amendment, if later. Suspending Contributions in Safe Harbor Match Plans Under the temporary IRS relief, both safe harbor matching plans and safe harbor nonelective plans can proceed to suspend contributions even if the economic loss or reservation of rights requirements are not satisfied. If either of these requirements is met, participants are required to receive at least 30 days’ advance notice of the suspension and have a reasonable opportunity to change their deferral elections. Safe harbor contributions under both matching and nonelective contribution safe harbor plans are permitted to be suspended under the regular rules provided either: 1) the plan sponsor is operating at an economic loss for the plan year or 2) the safe harbor notice for the year included language reserving the right to suspend contributions in the future. Safe Harbor Contribution Suspensions that Include Non-Highly Compensated Employees While not mentioned in the notice, highly compensated employees would presumably retain contributions made for them through the date of the suspension in order to comply with Internal Revenue Code Section 411(d). However, the highly compensated employees must receive notice of the suspension 30 days before its effective date since it changes information in the safe harbor notice previously provided. The plan will not lose its safe harbor status by doing so. While the IRS says this is technically not new relief, the agency has clarified that it is permissible for plan sponsors to suspend contributions for highly compensated employees at any time. Safe harbor 401(k) plans are not required to cover highly compensated employees (HCEs). Suspending Contributions for Highly Compensated Employees These rules apply equally to reductions of safe harbor contributions and to 403(b) plans with safe harbor provisions. The IRS has just issued a notice that temporarily eases some of these rules for amendments adopted from March 13 through August 31. There are exceptions in the regulations allowing plans that satisfy certain requirements to suspend contributions, but these have posed a problem for plan sponsors that determine they need to suspend contributions as a result of COVID-19. However, since these plans come with a price-in addition to requiring minimum employer contributions for non-highly compensated employees-they are subject to a general requirement that safe harbor plan provisions must be in effect for the entire plan year. Safe harbor 401(k) plans have become popular because they can avoid the need for plan sponsors to deal with failures of nondiscrimination testing when non-highly compensated employees (NHCEs) don’t contribute at sufficient levels.
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