My plan has Safe Harbor status; can I change my employer contribution mid-year? Can I add a Safe Harbor feature to my plan mid-year?

Generally, changes to a Safe Harbor plan should be made prior to the start of the plan year, or prior to January 1st, for Guideline plans. The rules for making changes to Safe Harbor plans depend on the type of change, the type of Safe Harbor contribution (match vs nonelective) and the timing of the change. 

Change to reduce or suspend Safe Harbor contributions

You can reduce or suspend your Safe Harbor employer contribution (match or nonelective) mid year if you meet certain criteria:

  • Your business is operating at an economic loss; or
  • The Safe Harbor notice you provided your employees before the start of the plan year includes a statement that you may reduce or suspend contributions mid-year. Guideline plan safe harbor notices include this statement automatically.

Even if you meet one or both of these conditions, changes to reduce (or suspend) your employer contribution mid-year means your plan will lose its Safe Harbor status and your plan will be subject to compliance testing for that entire plan year. Additionally, a 30-day notice is required to be sent to participants before the change can go into effect and you’ll have to continue making your Safe Harbor contributions through the effective date of the change. It’s also important to be aware that once Safe Harbor status is dropped, you generally won’t be able to regain Safe Harbor status for your plan until January 1st of the following year. 

Change to increase Safe Harbor Match contributions

A sponsor can increase Safe Harbor Match contributions mid-year as long as notice is provided at least 30 days prior to the effective date of the change. In addition, if the plan is a Safe Harbor match, the increase must be adopted at least 3 months prior to the end of the plan year and the increased formula must be effective for the entire plan year. 

For example, a plan has a basic Safe Harbor matching contribution of 100% of deferrals up to 3% of compensation, plus a 50% match of the next 2% of compensation. Sponsor wants to increase the matching contribution to 100% of deferrals up to 5% of compensation. This change must be adopted no later than October 1st (for a calendar year plan), notice must be provided to Participants September 1, and at the end of the year the plan sponsor must “true up” matching contributions so that all deferrals up to 5% of compensation for the year receive a 100% match. 

Change to add Safe Harbor contributions 

It is much simpler to add Safe Harbor nonelective contributions. An amendment to adopt a Safe Harbor 3% nonelective contribution for the current plan year can be adopted anytime prior to 30 days before the end of the plan year. In fact, a plan can adopt a safe harbor nonelective contribution for the prior plan year as long as the nonelective contribution is at least 4% of Compensation (instead of the normal 3% minimum) and the amendment is adopted prior to the last day of the following plan year. Please note that the Safe Harbor nonelective contribution added mid-year or after the end of the plan year must be in place for the entire plan year that is at least 3 months long can and can only be used to satisfy ADP testing (if the plan has a matching contribution, ACP testing will still be required).  

In general, a plan cannot add a Safe Harbor matching contribution mid-year. There is an exception for a new plan that also establishes deferrals at the same time as the Safe Harbor match where both are established at least three months before the end of the plan year.

Other changes to Safe Harbor plans

Anytime a Safe Harbor plan makes a mid-year change, the change will need to be evaluated to determine if the change is permissible under the Safe Harbor rules. Many changes require a new Safe Harbor notice to be issued and other changes are simply not allowed. Safe Harbor plans cannot change the type of Safe Harbor (change from a Safe Harbor match to a Safe Harbor nonelective, for example) and cannot change plan rules to reduce the number of employees eligible to receive the Safe Harbor contribution. For more information, see https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-401k-plans-and-notices 

Safe Harbor Status

Not sure if your plan has Safe Harbor status? Check the “Compliance” page of your Guideline administrator dashboard. If your plan has Safe Harbor status and is currently exempt from non-discrimination testing, your compliance dashboard will state “[Plan Name] 401(k) Plan is a Safe Harbor plan for [Plan Year] and is not subject to ADP, ACP, or Top Heavy testing.” 

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Warning: Before discontinuing safe harbor employer contributions, you should consider whether your plan is likely to fail any of the non-discrimination tests that will apply to the plan once the safe harbor is removed. If so, you’ll want to weigh the consequences of failing the non-discrimination tests versus the savings you’ll experience in not having to make employer contributions to the plan to remediate those failures. See article: Compliance testing: What Plan Sponsors Need to Know for more information.

Also note that this article assumes participants can modify deferral contributions at any time. If the plan limits changes to deferrals, then an opportunity to modify deferrals must be provided anytime a notice is required.

To change your employer contributions, please email clients@guideline.com with your Guideline account number  and what you want to have as the new employer contribution for your plan. 








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