Mid-Year Changes To Safe-Harbor Plans

On November 14, 2013, the Internal Revenue Service issued final regulations modifying some of the conditions for making mid-year changes to employer matching or nonelective contributions under plans that utilize the nondiscrimination safe harbors under sections 401(k) and/or 401(m) of the Internal Revenue Code. These new regulations make some changes to the existing regulations, and to the proposed regulations that had been issued in 2009.

Before this new regulation, an employer maintaining a safe-harbor plan using employer nonelective contributions could not reduce or eliminate those contributions midyear – such a change could only be made with respect to employer matching contributions. The regulation removes the distinction between the two types of safe-harbor compliance, and allows either type of contribution to be reduced or eliminated during the year, subject to all of the same requirements. The difference between the two is the effective date of the change.