The IRS has provided temporary relief as a result of the ongoing COVID-19 pandemic for safe harbor contribution reductions or suspensions and related notification requirements for plan amendments adopted between March 13, 2020 and August 31, 2020. This relief provides employers with more flexibility during the pandemic.

Mid-Year plan amendments. Safe harbor contributions for a plan year may be amended during the plan year to reduce or suspend future matching or nonelective contributions only under certain conditions. The reduction or suspension of safe harbor contributions may be effective no earlier than the later of the date the amendment is adopted or 30 days after eligible employees are provided in a supplemental notice. Eligible employees must be given a reasonable opportunity prior to the reduction or suspension of safe harbor contributions to change their cash or deferred elections and, if applicable, their employee contribution elections.

Safe harbor contribution relief. A traditional safe harbor plan is required to satisfy the safe harbor nonelective contributions or safe harbor matching contributions for the plan year. Contributions must be made on behalf of each eligible employee who is not a highly compensated employee. A plan that includes safe harbor contributions for a plan year may be amended during the plan year to reduce or suspend future safe harbor matching contributions or safe harbor nonelective contributions, provided certain requirements are met.

Temporary relief for mid-year reductions or suspensions of safe harbor nonelective contributions. If a plan amendment that reduces or suspends safe harbor matching or nonelective contributions during a plan year is adopted between March 13, 2020, and August 31, 2020, then the plan will be treated as satisfying the requirement that the employer either is operating at an economic loss or has included in the plan’s safe harbor notice for the plan year.

Notice requirement. If a plan amendment reduces or suspends safe harbor nonelective contributions adopted between March 13, 2020, and August 31, 2020, the plan will not be treated as failing to satisfy the requirements merely because a supplemental notice is not provided to eligible employees at least 30 days before the reduction or suspension of safe harbor nonelective contributions. The notice is effective if it is provided by August 31, 2020 and the plan amendment contribution changes are adopted by the effective date of the changes.

If you would like more information on mid-year plan amendments temporary relief for safe harbor contribution reduction or suspension and notification requirements, please contact us. We are here to assist you.

Venkat Iyer. CPA(USA). CPA(Canada). MBA

Venkat holds a CPA credential both in the USA and Canada, and he is very proficient in tax and compliance requirements in both countries. He is a Seasoned Business Adviser with 18+ years of extensive experience in diversified industries and accounting firms.He is also very prominent in implementing Lean Principles and Strong Financial Foundations for Hotels and Restaurants. He believes the key to any business success is knowing their indicators and their impact. He has been helping businesses with predictive analytics, transforming data from their enterprise's system for delivering meaningful insights.He is also a Business Automation Expert helping streamline the workflows from marketing to management to ensure optimal business performance.