The Internal Revenue Service (IRS) has historically been very restrictive with respect to what changes could be made mid-year to a safe harbor plan. However, IRS Notice 2016-16 erased most  restrictions that kept employers from adopting mid-year amendments to safe harbor 401(k) and 403(b) plans.  The Notice provides much needed guidance and allows a change to be made mid-year if the following requirements are met and the change is not a prohibited change as discussed later in this article.  If it is a change to a provision contained in the required safe harbor notice, the following notice and election opportunity conditions must be satisfied: 

    • An updated safe harbor notice that describes the mid-year change and its effective date must be provided within a reasonable period before the effective date of the change (generally 30-90 days). 
    • Employees must be given a reasonable opportunity before the effective date of the mid-year change to update their deferral election (30 days is deemed to be reasonable).  In the case of a retroactive change, an opportunity to change a deferral election must be provided as soon as practicable but no later than 30 days after the date the change is adopted. 
The following mid-year changes are prohibited by IRS Notice 2016-16 (unless the change listed below is later required by an updated law or regulation): 
  • a change to increase the years of service required to fully vest in safe harbor contributions under a Qualified Automatic Contribution Arrangements (QACA) . 
  • a change to further restrict the group of employees eligible to receive safe harbor contributions. However, eligibility changes with respect to employees who are not already eligible (as of the date the change) to receive safe harbor contributions under the plan are allowed. 
  • a change to the type of safe harbor plan. 
  • a change to modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions) if the change increases the amount of matching contributions. This includes discretionary matching contributions. A limited exception applies if at least 3 months prior to the end of the plan year, the change is adopted and the updated safe harbor notice and election opportunity are provided, and if the change is made retroactively effective for the entire plan year. 
If you have questions about safe harbor plans, including when changes may not be made to these plans, please contact your Nyhart consultant.