The Internal Revenue Service (IRS) recently issued Notice
2016-16, which provides safe harbor 401(k) plan sponsors with
increased flexibility to make mid-year plan changes. Notice
2016-16 sets forth new rules for when and how safe harbor plan
sponsors may amend their plans to make mid-year changes, a process
which traditionally has been subject to significant
restrictions.
Background
"Safe harbor" 401(k) plans are exempt from certain
nondiscrimination tests (the actual deferral percentage (ADP) and
actual contribution percentage (ACP) tests) that otherwise apply to
employee elective deferrals and employer matching
contributions. In return for these exemptions, safe harbor
plans must meet certain requirements, including required levels of
contributions, the requirement that plan sponsors provide the
so-called "safe harbor notice" to participants, and the
requirement that plan provisions remain in effect for a 12-month
period, subject to certain limited exceptions.
