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IRS Guidance on Midyear Changes to Safe Harbor Plans

IRS Notice 2016-16 provides guidance to plan sponsors on midyear amendments to safe harbor 401(k) plans or safe harbor 401(k) notices. The new guidance broadens the permissible types of midyear plan amendments, generally allowing them where certain conditions are satisfied unless specifically prohibited in the notice. The permissible amendments include those made effective after the first day of a plan year and retroactive amendments adopted after the end of a plan year.

If the amendment is to a provision that was addressed in a safe harbor notice, then an updated safe harbor notice is required within a reasonable time — generally 30 to 90 days before the effective date of the change. In addition, plan participants must be given a reasonable period of time to change their deferral elections.

Amendments still impermissible include:

  • Changing the type of safe harbor plan; for example, from a traditional safe harbor plan to a qualified automatic contribution arrangement (QACA)
  • Extending the vesting schedule for QACA safe harbor contributions
  • Decreasing the number or otherwise narrowing the group of employees eligible to receive safe harbor contributions*

* This prohibition does not apply to an otherwise permissible change under eligibility service credit rules or entry date rules made with respect to employees who are not already eligible to receive safe harbor contributions under the plan.

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