Timing of suspending safe harbor match

[Laura Harrington]

Treas. Reg. §1.401(k)-3(g)(1)(ii) says the following:

"The reduction or suspension of safe harbor matching contributions is effective no earlier than the later of 30 days after eligible employees are provided the notice described in paragraph (g)(2) of this section and the date the amendment is adopted;"

I read this to say that the effective date of the suspension of safe harbor match cannot be effective until the later of:

1) 30 days after the notice is provided or

2) the date the amendment is adopted

So if the employer wants to stop safe harbor match August 1, 2009 the notice needs to be provided by July 1, 2009 and the amendment must be signed on or before August 1, 2009.

I have seen commentary (including in Sal's ERISA Outline Book) that interprets the regulations to say that the effective date of the suspension of safe harbor match cannot be effective until the later of:

1) 30 days after the notice is provided or

2) 30 days after the amendment is adopted

I would interpret the regulation this way if it said "effective no earlier than the 30 days after the later of the date the eligible employees are provided the notice described in paragraph (g)(2) of this section and the date the amendment is adopted;"

What is your opinion? Does anyone know of commentary from the IRS which verifies how the regulation should be interpreted?

Thank you!

Laura

[Kevin C]

I read this to say that the effective date of the suspension of safe harbor match cannot be effective until the later of:

1) 30 days after the notice is provided or

2) the date the amendment is adopted

So if the employer wants to stop safe harbor match August 1, 2009 the notice needs to be provided by July 1, 2009 and the amendment must be signed on or before August 1, 2009.

I read it the same way you do. Notice 2000-3, Q&A 6 is the clearest example of the wording that I can find. There is also a description of the rule in the Background section of the preamble to the 5/18/2009 proposed regulations (3rd to last paragraph). The new rules for mid-year suspension of a SH non-elective use the same timing for the effective date. I don't see anything from the IRS that requires the amendment to adopted at least 30 days before it is effective.

[Guest Sieve]

You don't have to add all those words you suggest might be necessary in order to give the phrase the interpretation that Tripodi apparently does. You could just add a "(i)" and "(ii)", as follows: "the reduction or suspension . . . is effective no earlier than the later of 30 days after (i) eligible employees are provided the supplemental notice . . . and (ii) the date the amendment is adopted" (although I admit that (i) & (ii) are not parallel, since one uses the word "date" and the other doesn't--but no one said regs are, or must be, consistent). So, I think Tripodi's interpretation is as logical as yours.

FYI, Corbel (certainly not the authority, but an authority), in a technical release regarding mid-year SH 401(k) plan changes, indicates that in order to occur, a mid-year change to a SH match must, among other things, "[p]rovide a notice of the plan change to the employees at least 30 days before the effective date of the amendment to reduce or eliminate the match" AND "adopt an amendment to reduce or eliminate the matching contribution formula, effective at least 30 days after the amendment's adoption date". (This was issued before the SHNEC reduction was permitted under the proposed regs, which uses identical language with regard to the notice & amendment steps necessary.)

In fact, notice that the regulations (both final and new proposed) require that the supplemental notice must include, among other things, the effective date of "the amendment"--not the effective date of the "reduction or suspension of the safe harbor contribution"--which to me strongly suggests that the amendment must already be in place when the notice is given. And that would mean that both the distribution of the notice and the adoption of the amendment reducing the SH contribution would have to occur at least 30 days before the change could become effective.

ASPPA may not agree with the Tripodi/Corbel interpretation, however, when it says, in ASPPA asap No. 09-24: " . . . an employer can effectively suspend safe harbor . . . contributions after amending the plan but no sooner than 30 days after providing the notice".

I'm not saying that one interpretation is correct and the other incorrect--although I personally lean towards the Tripodi interpretation--because I haven't heard anything official from the Service to clarify this provision, but I think that a reading of the regs contrary to the position you posit is very much appropriate.

The bottom line conservative approach, of course, is to take both actions (distribution of the notice and adoption of the plan amendment) at least 30 days before the effective date of the change, if at all possible.

[Kevin C]

Don't you just love cites that can have more than one interpretation?

http://www.relius.net/News/OtherResources.aspx?T=P

Sunguard Relius has an amendment on their website for suspending the SH match mid-year. Here is footnote number 3 from the 6/11/2009 amendment:

The Effective Date must be on or after the adoption date of this Amendment. Treas. Reg. §1.401(k)-3(g)(1)(ii) and Prop. Treas. Reg. §1.401(k)-3(g)(1)(i)(B). In addition, the Amendment may be effective no sooner than 30 days after the date the employer provides a supplemental notice of the Amendment to all eligible employees.

The language Sieve quoted is from the Feb 6, 2009 technical update. The language in the May 21, 2009 update matches the language in the regulation.

http://www.relius.net/News/TechnicalUpdates.aspx?T=P

This would be so much easier if the IRS stayed with the language from Notice 2000-3, Q&A 6:

(2) The reduction or elimination of matching contributions is effective no earlier than the later of (i) 30 days after eligible employees are given the supplemental notice and (ii) the date the amendment is adopted;