Mid-Year Amendments to Safe Harbor Plans



Posted by Chris Ciminera, CPA, QKA

Disclaimer: All blog posts are valid as of the date published.


It is not often that we can give our clients good news as a result of new guidance from the Internal Revenue Service, but thanks to Notice 2016-16, Mid-Year Changes to Safe Harbor Plans and Safe Harbor Notices, we have fantastic news. This long-awaited guidance continues to permit mid-year amendments to a safe harbor plan to:


  • Terminate the plan
  • To reduce or eliminate the safe harbor match;
  • To adopt a short plan year or to change the plan year;
  • To expand coverage of employees previously not included;
  • To change an investment vendor;
  • To change a trustee;
  • To retroactively correct an operational failure under the IRS Employee Plans Compliance Resolution System (EPCRS); and
  • To allow a Roth deferral feature

Better yet, the Notice does not disallow mid-year changes to a safe-harbor plan if the change is not in the list of prohibited mid-year changes, as follows:

  1. A mid-year change to increase the number of completed years of service required for an employee to have a nonforfeitable right to the employee’s account balance attributable to safe harbor contributions under a QACA pursuant to the safe harbor rules under 1.401(k)-3(k)(3) or 1.401(m)-3(a)(2).
  2. A mid-year change to reduce the number or otherwise narrow the group of employees eligible to receive safe harbor contributions. This prohibition does not apply to an otherwise permissible change under eligibility service crediting rules or entry date rules made with respect to employees who are not already eligible to receive safe harbor contributions under the plan.
  3. A mid-year change to the type of safe harbor plan, for example, a change from a traditional 401(k) safe harbor plan to a QACA 401(k) safe harbor plan.
  4. A mid-year change to (i) modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions, or (ii) permit discretionary matching contributions. However, this prohibition does not apply if, at least 3 months prior to the end of the plan year, the change is adopted and the updated safe harbor notice and election opportunity are provided, and if the change is made retroactively effective for the plan year.

This broad-based leniency described above was very timely as I was able to deliver positive news recently.  The matter involved a retirement plan that is a 401(k) safe harbor plan.  The employment contract promised employees a higher match than what was actually provided under the safe harbor match formula.  As you may suspect, the employees were not happy that they were receiving less than they were promised.  To try to resolve the issue, the third-party administrator was contacted in late 2015 for a requested change in the safe harbor match formula to agree to the specified rate in the employment contract.  However, since the third-party administrator was not contacted until later in 2015, the required safe harbor notices could not be timely provided to participants.  Under the previous rules, the plan could not be amended until January 1, 2017.  Luckily, the IRS released Notice 2016-16 on January 29, 2016.   In addition to allowing more leniency to mid-year amendments, the Notice relaxes the requirements to distribute an updated safe harbor notice to participants if it is not practicable for the updated safe harbor notice to be provided before the effective date of the change.  An example in the notice specifically states that the participant notice is treated as having been provided timely if it is provided as soon as practicable, but not later than 30 days after the date the change is adopted.  The general rule is that a safe harbor notice must be provided to the participant at least 30 days (and not more than 90 days) before the effective date of the change.

On January 29, 2016, I was able to give good news in regard to IRS Notice 2016-16, which allowed the mid-year change to the safe harbor match formula that was needed to agree with the employment contract.   I would say that’s a pretty good beginning to 2016, and it’s only a matter of time until I have to give unwelcome news to someone about some IRS rule that they have inadvertently broken, so for now, I am enjoying this good news from the IRS.

Contact Us

If you have questions or seek additional information on this subject, please contact our Employee Benefit Plan Team.

Maria T. Hurd, CPA
Retirement Plan Audit Services

Chris J. Ciminera, CPA, QKA
Manager – Accounting & Auditing

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