What does "reduction" of a safe harbor benefit mean?

Notice 2016-16 states that a permissible mid-year amendment for a SH plan can be:

Quote

(iii) Reduction or suspension of safe harbor contributions or changes from safe harbor plan status to non-safe harbor plan status (permitted only as described in §§ 1.401(k)-3(g) and 1.401(m)-3(h)).

1.401(k)-3g says you can change SH plan mid year if

a) there the company is operating at an economic loss OR

b) the ER adds the the annual notice a statement that the plan may be amended during the year to reduce or suspend the SH NEC contributions provided a supplemental notice is given at least 30 days before the reduction.  

I checked the SH notice that comes out of or doc system (FT William) and I don't see such a paragraph.  So, are we out of luck under b)?  How would they stop it, then, if they can't afford it but not operating at an economic loss?  Can they just send a notice now that says:  effective Sep 1, we are stopping the SH?  (plus all the other conditions, like letting participants change their deferral elections, etc).

OK, that was the first part of the question.  Now to the crux of my inquiry:

let's say all the proper notices were produced and provided.  The ER want's to reduce the benefit (in effect)

What is it meant by a "reduction" in the SH benefit?  4% NEC to 3%? Could they modify compensation that in effect reduces the benefit?  For example, exclude commissions?  (assume that 414 passes).

The language you seek should be under the first paragraph of the safe harbor contribution section of the notice. It should say something like this:

"The Plan may be amended during the plan year to reduce or suspend the safe harbor contributions. The reduction or suspension will not apply until at least 30 days after you are provided notice of the reduction or suspension."

My understanding is that this means any amendment that reduces the safe harbor amount, including a change in the definition of compensation, must follow the safe harbor exiting rules under the regulations. That includes the 30-day notice and funding to the end of the 30-days, and changes the plan from safe harbor to not safe harbor (current year testing).

So, it would be stupid to "reduce" safe harbor and not suspend it.  (Unless you are ok with your testing).