Robin Wilson Posted October 27, 2021 Posted October 27, 2021 Section B.III.D.4 (prohibited mid-year changes) of Notice 2016-16, states the following: A mid-year change (i) to modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions) if the change increases the amount of matching contributions, or (ii) to 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 entire plan year (which may require a plan that provides for periodic matching contributions as described in §§ 1.401(k)-3(c)(4) and (5)(ii) and/or 1.401(m)-3(d)(4) to be amended to provide for matching contributions based on the entire plan year). It appears that you may add SH match mid year per the exception. What is does not say is if the plan had to have already had Safe Harbor match during that same year and then had it removed. My take on this is that that plan did not have to have already had Safe Harbor Match. Please advise of your opinion. Thank you.
duckthing Posted October 27, 2021 Posted October 27, 2021 The language about prohibited mid-year changes applies to plans that are already safe harbor plans. It does not apply to a plan that does not have a safe harbor provision in place. The "(or add)" that you bolded is referring to modifying or adding a match formula to an existing safe harbor plan, not turning a non-safe harbor plan into a safe harbor match plan mid-year. On your second comment, a plan that suspends safe harbor contributions mid-year is not a safe harbor plan for that year. They cannot re-add a safe harbor match mid-year to become a safe harbor plan again for the year. Luke Bailey and Bill Presson 2
MWeddell Posted November 2, 2021 Posted November 2, 2021 I agree that the quoted portion of IRS Notice 2016-16 allows one to amend a safe harbor plan mid year to modify or add a matching contribution. It does not allow one to convert a non-safe harbor plan to a safe harbor plan midyear.
Robin Wilson Posted January 21, 2022 Author Posted January 21, 2022 More on this topic.....Accordingly, may a safe harbor match formula be "modified" mid year within the realm of the procedures listed or is the "add (or modify)" on with regard to a discretionary match?
MWeddell Posted January 24, 2022 Posted January 24, 2022 The safe harbor match may be increased in some circumstances. See Section III.D.4 of Notice 2016-16: https://www.irs.gov/pub/irs-drop/n-16-16.pdf If you want to reduce the match mid year, see Section III.B(iii) of the same notice. It's generally not allowed except as permitted in the regulations. The regulations allow the reduction if the plan loses its safe harbor status and if the employer is operating at an economic loss or the safe harbor notice contained text reserving this right.
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