On May 18, 2009, the IRS issued proposed regulations that offer an alternative to plan termination for certain safe harbor plans that provide safe harbor nonelective contributions. Until such date, the only way to end nonelective safe harbor contributions was to terminate the plan. Under the proposed regulations, an employer that suffers a “substantial business hardship” can now amend its plan to reduce or suspend the plan’s safe harbor nonelective contributions, provided the following requirements are met:
The requirements for suspension and reduction of safe harbor nonelective contributions generally parallel the requirements for suspension and reduction of safe harbor matching contributions. The main distinction is that safe harbor nonelective contributions can only be reduced or suspended if the employer suffers a “substantial business hardship.” The factors taken into account when determining “substantial business hardship” include:
The proposed regulations apply to any plan amendments adopted after May 18, 2009 and plans may rely on the proposed regulations until final regulations are issued. The proposed regulations do not provide relief from the top-heavy rules. Thus, a top-heavy plan that is amended to reduce or suspend nonelective safe harbor contributions will still be obligated to make the three percent minimum top-heavy contribution.
If you have any questions regarding the new proposed regulations or would like assistance in amending your safe harbor plan, please contact a member of the Gray Plant Mooty Employee Benefits and Executive Compensation practice group.
This article is provided for general informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult a lawyer concerning any specific legal questions you may have.
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