Publications

May 21, 2009

Author: Jeffrey H. Dixon

A number of plan sponsors and plan advisors have inquired about the obligation to a safe harbor 401(k) plan in the event the down turn in the economy requires the company to suspend the safe harbor contribution. Until now, only a safe harbor 401(k) plan which utilizes a matching safe harbor contribution was permitted to suspend the matching contribution and continue to operate the plan. A plan which utilizes the nonelective safe harbor contribution (typically a 3% fully vested contribution to all eligible employees) was not permitted to suspend the 3% contribution during the year without terminating the plan.

Fortunately, on May 18, 2009, the Internal Revenue Service (“IRS”) published proposed amendments to certain Treasury Regulations to provide an employer incurring a “substantial business hardship” an alternative to terminating the 401(k) safe harbor plan. An employer meeting certain requirements can reduce or suspend a required safe harbor nonelective contribution without losing their plan’s qualified status.

Download this Mitchell Williams E-Brief for detailed information about the amendments.

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