On January 29, 2016, the IRS issued guidance that will be of
great interest to any employer sponsoring a safe harbor plan. In
Notice 2016-16, the IRS approves nearly all mid-year amendments to
a safe harbor plan, provided certain notice requirements are
satisfied and the amendment is not on a shortlist of prohibited
amendments. Prior to this guidance, employers faced uncertainty
regarding what, if any, mid-year amendments could be made.
Background
This uncertainty arose out of Treasury Regulation Section
1.401(k)-3(e)(1), which generally provides that safe harbor
provisions must be adopted before the first day of the plan year
and must remain in effect for the entire plan year. The IRS had
generally interpreted this provision to prohibit mid-year
amendments, but it was unclear as to whether this prohibition
extended to all plan changes or merely those that impacted the safe
harbor provisions.
