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Mid-year retirement plan change relief provided

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Tax Hot Topics newsletter The IRS issued Notice 2020-52 providing temporary COVID-19 relief for safe harbor qualified retirement plans with respect to (1) mid-year reductions or suspensions of safe harbor matching or safe harbor nonelective contributions and (2) the supplemental notice requirements for mid-year reductions or suspensions of safe harbor nonelective contributions.

Specifically, if a plan amendment that reduces or suspends safe harbor matching contributions or safe harbor nonelective contributions during a plan year is adopted between March 13, 2020, and Aug. 31, 2020, then the plan will not be treated as failing to satisfy the economic loss or safe harbor notice requirements in Sections 401(k) or (m) and the regulations thereunder.
In addition, if a plan amendment that reduces or suspends safe harbor nonelective contributions during a plan year is adopted between March 13, 2020, and Aug. 31, 2020, then the plan will not be treated as failing to satisfy the supplemental notice requirements of Section 401(k) or (m) and the underlying regulations, provided certain requirements are met. However, the notice does not provide relief with respect to the timing of supplemental notices for a mid-year reduction or suspension of safe harbor matching contributions.

The IRS also clarifies in the notice that contributions made on behalf of highly compensated employees (HCEs) generally do not qualify as safe harbor contributions. However, a mid-year change that reduces only contributions made on behalf of HCEs would still be considered a mid-year change to a plan’s required safe harbor notice content for purposes of Notice 2016-16, which generally would require an updated safe harbor notice and an election opportunity be provided to the affected HCEs.

Similar terms as above apply to Section 403(b) plans that apply the Section 401(m) safe harbor rules pursuant to Section 403(b)(12).

Contacts:
Jeff Martin
Partner
Washington National Tax Office
T +1 202 521 1526

Keith Mong
Managing Director
Washington National Tax Office
+1 202 521 1554

James Sanchez
Senior Associate
Washington National Tax Office
+1 202 861 4107

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