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The IRS has issued an amendment to the 401(k) regulations which significantly expand how safe harbor 401(k) plans can operate.  Under the new regulations, employers may stop the 3% non-elective safe harbor contribution to a 401(k) plan mid-year, if either (1) the employer is “operating at a loss” for the plan year; or (2) the employer has advised employees as part of the annual safe harbor that it might not make the contribution (“maybe not notice”).  This option to cease safe harbor contributions is new and can be used for the 2014 plan year.  Previously, an employer had to be suffering a “substantial business hardship” before the IRS permitted employers to stop the 3% contributions.


Also under these new rules, the IRS gives the same ability to stop the safe harbor matching contribution to employees starting in 2015 if either the employer is operating at a loss or a “maybe not notice” is given.  In order to effect the cessation the employer must:

  • Provide a 30-day advance notice advising participants of the cessation;
  • Amend the plan to provide for the cessation;
  • Make the safe harbor contribution based on compensation paid for the period of the plan year during which the safe harbor was in effect (i.e., from the beginning of the year through the 30-day period or, if later, the date on which the amendment to remove the safe harbor is adopted);
  • Pass ADP/ACP testing for the entire year; and
  • Give participants an opportunity before the cessation is effective to change their deferral rate.


Because including what might be called a “maybe not” notice is new and most existing safe harbor notices do not have such language, employers may wish to consider including it in their 2014 safe harbor notices to provide flexibility.