401k Safe Harbor Provision Changes

The IRS has amended it’s rules on Safe Harbor contributions to allow employers to terminate the match during these hard times.

On May 18 the Internal Revenue Service (IRS) published proposed regulations that could provide relief to employers whose plans provide for safe harbor non-elective contributions. The relief allows employers to amend their plan to reduce or suspend future safe harbor non-elective contributions without terminating the plan if the employer is encountering a “substantial business hardship” (as set forth in certain criteria established by the IRS). While the suspension of employer contributions may potentially have an impact on employee morale and the perception of the employer’s benefits program by potential employees, employers who meet the criteria may find that these regulations provide welcome and necessary relief from future safe harbor non-elective contribution funding requirements and a viable alternative to terminating the plan.