The general rule is that Safe Harbor plans may not be amended after the plan year starts. Any amendments made after the plan year begins may only be effective for the next plan year. The IRS believes the required Safe Harbor notice that must be provided 30-90 days before the beginning of the plan year is the employer’s promise that the plan will not change, and that employees should be able to rely on the notice when making their decision on whether or not to participate and make deferrals. To say that the plan could not be changed for an entire year would be unrealistic, thus there are limited exceptions which include:
Adding a hardship withdrawal provision.
Adding a qualified Roth provision.
Adopting a Safe Harbor 3% non-elective contribution if made no later than 30 days before the end of the plan year when the proper annual and supplemental notice requirements are met (i.e., the “wait and see” approach). Using the wait and see approach allows the employer to provide an annual Safe Harbor notice that tells participants the employer may make the 3% non-elective contribution, and will communicate their decision before the end of the plan year. If the employer decides to make the contribution, the plan must be amended to permit the contribution.
Suspending or reducing a Safe Harbor matching contribution formula provided the employer:
- amends the plan,
- issues a supplemental notice at least 30 days before the suspension to all eligible employees explaining the amendment and the procedure for changing a deferral election,
- gives all eligible employees the chance to change their deferral election, and
- amends the plan to provide the ADP/ACP test will be used for the entire plan year using the current year testing method.
Suspending or reducing the Safe Harbor non-elective contribution if the employer completes the steps above for suspending or reducing the Safe Harbor matching contribution and demonstrates a substantial business hardship under the IRS rules (operating at a loss, industry downturn, anticipated termination of the plan without the amendment).
Expanding eligibility, for instance, an amendment to allow participation of salaried workers in a plan currently set up for hourly workers only.
Making a required regulatory amendment in order to comply with a law, for example, the Pension Protection Act of 2006.