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ARA Comments on Mid-Year Changes to Safe Harbor Plans

The American Retirement Association has submitted a letter to the IRS in response to the request in IRS Notice 2016-16 for comments on additional guidance needed for mid-year changes to safe harbor plans under Code Section 401(k)(12) and (13) and safe harbor 403(b) plans under Code Section 403(b)(12)(A)(i).

The ARA believes the guidance the notice provides will greatly assist plan sponsors maintaining safe harbor plans and encourage adoption of additional safe harbor plans.

In response to the request for comments on additional matters requiring guidance, the ARA:

1. requests clarification on several matters related to Notice 2016-16;
2. identifies additional guidance needed to address mid-year changes relating to plan sponsors involved in mergers and acquisitions; and
3. identifies additional guidance needed for plans that include an eligible automatic contribution arrangement (EACA) under Code Section 414(w).

Specifically, the ARA recommends that the IRS allow:

  • prospective mid-year changes to eligibility in addition to entry date changes;

  • mid-year amendments adopted or effective before Jan. 29, 2016 without jeopardizing safe harbor status, provided the amendment was not a prohibited change under Notice 2016-16;

  • mid-year amendment of the safe harbor contribution in accordance with the exception for a final plan year under Treas. Reg. §1.401(k)-3(e)(4) for plans merging into an acquirer’s plan;

  • conditional notices of reduction or suspension of safe harbor contributions for mergers and acquisition situations;

  • a safe harbor plan sponsor acquired by another safe harbor plan sponsor to adopt the plan of its acquirer mid-year; and

  • a mid-year amendment to a safe harbor plan to exclude classifications of employees employed after the acquisition but not prior to the acquisition.

The ARA also suggests that the IRS:

  • provide flexibility to plan sponsors in meeting the employee mid-year change notice requirements of Notice 2016-16 by allowing a Summary of Material Modifications (SMM), change notice or updated safe harbor notice;

  • clarify what is meant by “type” of safe-harbor plan in the context of classifying a mid-year change in the type of safe-harbor plan as a prohibited mid-year change; and

  • extend application of Notice 2016-16 to EACAs and allow mid-year establishment of such arrangements.

Finding out More

An ASPPA webcast, “Mid-Year Changes to Safe-Harbor 401(k) Plans: New Rules Under IRS Notice 2016-16,” is available on demand; click here.