IRS Permits Mid-Year Changes to 401(k) Safe Harbor Contributions

On November 14, 2013, the Internal Revenue Service issued final regulations that permit mid-year reductions or suspensions of safe harbor nonelective contributions, and that modify the rules permitting mid-year reductions or suspensions of safe harbor matching contributions, to 401(k) plans (the "Final Regulations").

As way of background, the Internal Revenue Code ("Code") provides that contributions to a 401(k) plan cannot be discriminatory in favor of highly compensated employees, which can be demonstrated through annual complex nondiscrimination tests. As an alternative, a 401(k) plan sponsor can also demonstrate that its plan is not discriminatory by making safe harbor matching or nonelective contributions to the 401(k) plan, and by providing participants with notice of the safe harbor contributions.