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:

  • Participants need to receive a notice of safe harbor feature termination 30 days before its effective date; this is so employees can change their salary deferrals if they wish to do so;
  • Plan documents needs to be amended (i.e., the safe harbor language needs to be removed effective a specific date);
  • Because a safe harbor suspension or termination applies only to future compensation (it’s not retroactive to the first day of plan year), the safe harbor contribution must be made through the date of its removal from the plan;
  • The plan once again will be subject to the nondiscrimination testing for salary deferrals and matching contributions for the entire year, which may impact highly compensated employees’ ability to make salary deferrals;
  • If the plan is top heavy and any key employees have deferred or received a company contribution, the company may be required to make a top-heavy minimum contribution for any participant employed on the last day of the plan year.

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.