Can a Safe Harbor 401(k) feature be discontinued mid-year?
Neither the CARES Act nor the IRS has provided any special relief for safe harbor 401(k) plans as of April 13. However, the existing regulations provide rules for mid-year changes to safe Harbor 401(k) contributions. A plan may be amended to eliminate the safe harbor contribution, either non-elective or match.
There are some important caveats:
NOTE: If the employer who usually makes a safe harbor contribution on a payroll basis wants to delay making it for cash flow planning purposes, then it is not necessary to suspend the safe harbor feature. The safe harbor contribution due date for the 2020 plan year is the last day of plan year ending in 2021, so additional time is available. That said, if the plan document states that the safe harbor contribution is to be deposited on a payroll basis, it may be amended prospectively to deposit it annually. There are some additional technical nuances, so it’s important to check with a retirement plan consultant before implementing this option.
Cetera Retirement Plan Specialists is a third-party administrator and may not offer tax, legal or investment advice. Plan sponsors should consult their own tax, legal or investment professionals.