[Federal Register Volume 78, Number 221 (Friday, November 15, 2013)]
[Rules and Regulations]
[Pages 68735-68739]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-27452]
[[Page 68735]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9641]
RIN 1545-BI64
Reduction or Suspension of Safe Harbor Contributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final Regulations.
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SUMMARY: This document contains amendments to regulations relating to
certain cash or deferred arrangements under section 401(k) and matching
contributions and employee contributions under section 401(m). These
regulations provide guidance on permitted mid-year reductions or
suspensions of safe harbor nonelective contributions in certain
circumstances for amendments adopted after May 18, 2009. These
regulations also revise the requirements for permitted mid-year
reductions or suspensions of safe harbor matching contributions for
plan years beginning on or after January 1, 2015. The regulations
affect administrators of, employers maintaining, participants in, and
beneficiaries of certain defined contribution plans that satisfy the
nondiscrimination tests of section 401(k) and section 401(m) using one
of the design-based safe harbors.
DATES: Effective Date: These regulations are effective on November 15,
2013.
Applicability Date: These regulations generally apply to amendments
adopted after May 18, 2009. The amendments to the requirements for
permitted mid-year reductions or suspensions of safe harbor matching
contributions apply for plan years beginning on or after January 1,
2015.
FOR FURTHER INFORMATION CONTACT: William D. Gibbs at (202) 622-6060
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)) under control number 1545-2191. The collection of
information in these final regulations is in Sec. 1.401(k)-3(g)(2) and
Sec. 1.401(m)-3(h)(2). The collection of information relates to the
new supplemental notice requirements in the case of a reduction or
suspension of safe harbor nonelective or matching contributions and the
requirement to include additional information in the notice required by
Sec. Sec. 1.401(k)-3(d), 1.401(k)-3(g), and 1.401(m)-3(h) for certain
plans that would be permitted to reduce or suspend safe harbor
nonelective or matching contributions for a plan year even if the
employer had not experienced a business hardship. The likely
recordkeepers are businesses and other for-profit institutions,
nonprofit institutions, and State and local governments.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains amendments to regulations under sections
401(k) and 401(m) of the Internal Revenue Code. Section 401(k)(1)
provides that a profit-sharing, stock bonus, pre-ERISA money purchase,
or rural cooperative plan will not fail to qualify under section 401(a)
merely because it contains a qualified cash or deferred arrangement.
Section 1.401(k)-1(a)(2) defines a cash or deferred arrangement (CODA)
as an arrangement under which an eligible employee may make a cash or
deferred election with respect to contributions to, or accruals or
other benefits under, a plan that is intended to satisfy the
requirements of section 401(a). Contributions that are made pursuant to
a cash or deferred election under a qualified CODA are commonly
referred to as elective contributions.
In order for a CODA to be a qualified CODA, it must satisfy a
number of requirements. For example, contributions under the CODA must
satisfy either the nondiscrimination test set forth in section
401(k)(3), called the actual deferral percentage (ADP) test, or one of
the design-based alternatives in section 401(k)(11), 401(k)(12), or
401(k)(13). Under the ADP test, the average percentage of compensation
deferred for eligible highly compensated employees (HCEs) is compared
to the average percentage of compensation deferred for eligible
nonhighly compensated employees (NHCEs), and, if certain deferral
percentage limits are exceeded with respect to HCEs, corrective action
must be taken.
Section 401(k)(12) provides a design-based safe harbor method under
which a CODA is treated as satisfying the ADP test if the arrangement
meets certain contribution and notice requirements. A plan satisfies
this designed-based safe harbor method if the employer makes specified
qualified matching contributions (QMACs) for all eligible NHCEs. The
employer can make QMACs under a basic matching formula that provides
for QMACs on behalf of each eligible NHCE equal to 100% of the
employee's elective contributions that do not exceed 3% of
compensation, and 50% of the employee's elective contributions that
exceed 3% but do not exceed 5% of compensation. Alternatively, the
employer can make QMACs under an enhanced matching formula that
provides, at each rate of elective contributions, for an aggregate
amount of QMACs that is at least as generous as under the basic
matching formula, but only if the rate of QMACs under the enhanced
matching formula does not increase as the employee's rate of elective
contributions increases. In lieu of QMACs, the plan is permitted to
provide qualified nonelective contributions (QNECs) equal to 3% of
compensation for all eligible NHCEs. In addition, under the design-
based safe harbor methods, notice must be provided to each eligible
employee, within a reasonable period before the beginning of the plan
year, of the employee's rights and obligations under the plan.
Section 401(k)(13), as added by section 902 of the Pension
Protection Act of 2006, Public Law 109-280 (PPA '06), provides an
alternative design-based safe harbor for a CODA that provides for
automatic contributions at a specified level and meets certain
requirements, including employer contribution and notice requirements.
Similar to the design-based safe harbor under section 401(k)(12),
section 401(k)(13) provides an employer the choice between satisfying a
matching contribution requirement or a nonelective contribution
requirement. Under the matching contribution requirement, the employer
can make matching contributions under a basic matching formula that
provides for matching contributions on behalf of each eligible NHCE
equal to 100% of the employee's elective contributions that do not
exceed 1% of compensation and 50% of the employee's elective
contributions that exceed 1% but do not exceed 6% of compensation.
Alternatively, the employer can make matching contributions under an
[[Page 68736]]
enhanced matching formula that provides, at each rate of elective
contributions, for an aggregate amount of matching contributions that
is at least as generous as under the basic matching formula, but only
if the rate of matching contributions under the enhanced matching
formula does not increase as the employee's rate of elective
contributions increases. In addition, the plan must satisfy a notice
requirement under section 401(k)(13) that is similar to the notice
requirement under section 401(k)(12).
Section 401(m) sets forth a nondiscrimination requirement that
applies to a plan providing for matching contributions or employee
contributions. Such a plan must satisfy either the nondiscrimination
test set forth in section 401(m)(2), called the actual contribution
percentage (ACP) test, or one of the design-based alternatives in
section 401(m)(10), 401(m)(11), or 401(m)(12). The ACP test in section
401(m)(2) is comparable to the ADP test in section 401(k)(3).
Under section 401(m)(11), a defined contribution plan is treated as
satisfying the ACP test with respect to matching contributions if the
plan satisfies the ADP safe harbor of section 401(k)(12) and certain
other requirements are satisfied. Similarly, under section 401(m)(12),
as added by section 902 of PPA '06, a defined contribution plan that
provides for automatic contributions at a specified level is treated as
meeting the ACP test with respect to matching contributions if the plan
satisfies the ADP safe harbor of section 401(k)(13) and certain other
requirements are satisfied.
Final regulations under sections 401(k) and 401(m) were published
on December 29, 2004. Sections 1.401(k)-3 and 1.401(m)-3 set forth the
requirements for a safe harbor plan under sections 401(k)(12) and
401(m)(11), respectively. On February 24, 2009, final regulations
reflecting sections 401(k)(13) and 401(m)(12) were published in the
Federal Register (74 FR 8200).
Sections 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1) provide that,
subject to certain exceptions, a safe harbor plan must be adopted
before the beginning of the plan year and be maintained throughout a
full 12-month plan year. Accordingly, if, at the beginning of the plan
year, a plan contains an allocation formula that includes safe harbor
matching or safe harbor nonelective contributions, then the plan may
not be amended to revert to ADP or ACP testing for the same plan year
(except to the extent permitted under Sec. Sec. 1.401(k)-3 and
1.401(m)-3). Sections 1.401(k)-3(g) and 1.401(m)-3(h) set forth the
requirements (including a notice and timing requirement) that must be
satisfied in order for a plan that satisfies the ADP and ACP tests
using safe harbor matching contributions to be amended during the plan
year to reduce or suspend such contributions and to satisfy ADP and ACP
tests using the current year testing method. Sections 1.401(k)-3(f) and
1.401(m)-3(g) set forth the requirements that must be satisfied
(including a notice requirement) in order for a plan to be amended
after the first day of the plan year to provide that it will satisfy
the ADP and ACP tests for that year using safe harbor nonelective
contributions, effective as of the first day of that plan year.
Sections 1.401(k)-3(e)(4) and 1.401(m)-3(f)(4) provide that, if a
plan terminates during a plan year, the plan will not fail to satisfy
the requirements of Sec. Sec. 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1)
merely because the final plan year is less than 12 months, provided
that the plan satisfies the requirements of Sec. Sec. 1.401(k)-3 and
1.401(m)-3 through the date of termination and certain other conditions
are satisfied (for example, the termination is in connection with a
transaction described in section 410(b)(6)(C) or the employer incurs a
substantial business hardship (comparable to a substantial business
hardship described in section 412(d)).\1\
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\1\ The definition of substantial business hardship in section
412(d) was relocated to become part of section 412(c) by section 111
of PPA '06.
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On May 18, 2009, proposed regulations under sections 401(k) and
401(m) were published in the Federal Register (74 FR 23134), which
would permit the mid-year reduction or suspension of safe harbor
nonelective contributions in certain circumstances. Written comments
were received on the proposed regulations, and a public hearing was
held September 23, 2009. After consideration of the comments, these
final regulations adopt the provisions of the proposed regulations with
certain modifications, the most significant of which are highlighted in
the Summary of Comments and Explanation of Revisions.
Summary of Comments and Explanation of Revisions
The proposed regulations would have required, as a condition of the
permitted reduction or suspension of safe harbor nonelective
contributions, that the employer incur a substantial business hardship
(comparable to a substantial business hardship described in section
412(c)). Several commentators requested that the substantial business
hardship requirement be eliminated as a condition of the reduction or
suspension. The commentators argued that there were insufficient policy
reasons for the rules permitting the reduction or suspension of safe
harbor nonelective contributions to be stricter than the rules
permitting the reduction or suspension of safe harbor matching
contributions, that the determination of whether the employer satisfies
each of the elements of the section 412(c) definition of substantial
business hardship is unnecessarily burdensome, and that employers will
not have certainty that they satisfy the substantial business hardship
requirements.
The final regulations make two changes in response to these
concerns about demonstrating compliance with the requirement that the
employer incur a substantial business hardship (comparable to a
substantial business hardship described in section 412(c)). First, the
requirement has been modified by replacing the standard in the proposed
regulations that the employer have a substantial business hardship (as
described in section 412(c)) with a standard that the employer be
operating at an economic loss as described in section 412(c)(2)(A).
This new standard eliminates the requirement to determine the health of
the industry (as described in section 412(c)(2)(B) and (C)) or whether
the reduction or suspension of safe harbor nonelective contributions is
needed so that the plan will continue (as described in section
412(c)(2)(D)). Second, the final regulations permit an employer to
reduce or suspend safe harbor nonelective contributions without regard
to the financial condition of the employer if notice is provided to
participants before the beginning of the plan year which discloses the
possibility that the contributions might be reduced or suspended mid-
year. The notice must also provide that a supplemental notice will be
provided to plan participants if a reduction or suspension does occur
and that the reduction or suspension will not apply until at least 30
days after the supplemental notice is provided. These regulations do
not alter the existing ability of a safe harbor plan to use a
contingent notice (as described in Sec. 1.401(k)-3(f)(2)) before the
beginning of the plan year where the contingent notice indicates that
the plan may be amended during the plan year to include safe harbor
nonelective contributions and that, if the plan is amended, a follow-up
notice will be provided.
In order to achieve uniformity between the rules that apply to a
mid-
[[Page 68737]]
year reduction or suspension of safe harbor matching contributions and
the rules that apply to a mid-year reduction or suspension of safe
harbor nonelective contributions, the final regulations modify the
rules that apply to mid-year amendments reducing or suspending safe
harbor matching contributions so that the requirements that apply to a
mid-year reduction or suspension of safe harbor nonelective
contributions are not stricter than those that apply to a mid-year
reduction or suspension of safe harbor matching contributions. Thus,
safe harbor matching contributions may be reduced or suspended under a
mid-year amendment only if either (i) the employer is operating at an
economic loss as described in section 412(c)(2)(A), or (ii) the notice
provided to participants before the beginning of the plan year
discloses that the contributions might be reduced or suspended mid-
year, that participants will receive a supplemental notice if that
occurs, and that the reduction or suspension will not apply until at
least 30 days after the supplemental notice is provided. Because this
requirement is a new limitation on the ability of an employer to amend
its plan to reduce or suspend safe harbor matching contributions, the
change is first effective for plan years beginning on or after January
1, 2015.\2\
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\2\ The preamble to the proposed regulations indicated that the
IRS and Treasury were considering adding a requirement that
employers provide advance notice regarding the possibility of
reduced or suspended safe harbor contributions.
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The final regulations also provide that guidance of general
applicability published in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(b)) may set forth additional situations in which a
plan that includes provisions satisfying the requirements of Sec.
1.401(k)-3 will not fail to satisfy the requirements of section 401(k)
for a plan year even if the plan is amended during the plan year to
implement a mid-year change to those provisions. This will provide the
IRS with greater flexibility to develop rules to address special
circumstances under which a mid-year change to a section 401(k) safe
harbor plan is appropriate, such as an amendment to the plan in
connection with a mid-year corporate transaction. This flexibility also
extends to mid-year changes to a safe harbor plan under section 401(m)
of the Code.
Under the proposed regulations, the reduction or suspension of safe
harbor nonelective or matching contributions could not be effective
``earlier than the later of 30 days after eligible employees are
provided the supplemental notice . . . and the date the amendment is
adopted.'' The final regulations clarify the intention that the
reduction or suspension cannot be effective earlier than the later of
the date the amendment is adopted or 30 days after eligible employees
are provided the supplemental notice. Thus, the minimum 30-day waiting
period applies solely with respect to the date the supplemental notice
is provided and not the date the amendment is adopted.
The preamble to the proposed regulations stated that a plan that is
amended during the plan year to reduce or suspend safe harbor
contributions (whether nonelective contributions or matching
contributions) must prorate the otherwise applicable compensation limit
under section 401(a)(17) in accordance with the requirements of Sec.
1.401(a)(17)-1(b)(3)(iii)(A). Some commentators asked for clarification
as to how these rules apply. Such an explanation of the application of
the rules of section 401(a)(17) is beyond the scope of these section
401(k) and (m) regulations.
Some commentators requested that the regulations permitting a mid-
year amendment reducing or suspending safe harbor nonelective
contributions apply with respect to amendments adopted before the
proposed regulations were published in the Federal Register. Because
the regulations in effect before the proposed regulations were
published clearly prohibited such a plan amendment, any employer that
adopted such a plan amendment violated the rules applicable under
section 401(k) and, if applicable, section 401(m). The Employee Plans
Compliance Resolution System (EPCRS) provides a method to correct such
a violation. See Appendix A.05(2)(d)(iii) of Rev. Proc. 2013-12 (2013-4
IRB 313, 367), see Sec. 601.601(d)(2).
Applicability Dates
These regulations generally apply to amendments adopted after May
18, 2009, the effective date previously provided in the proposed
regulations. The amendments to the requirements for permitted mid-year
reductions or suspensions of safe harbor matching contributions apply
for plan years beginning on or after January 1, 2015.
Special Analyses
It has been determined that these final regulations are not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It has also been
determined that 5 U.S.C. 533(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations. It is hereby
certified that the collection of information in these final regulations
will not have a significant economic impact on a substantial number of
small entities. This certification is based upon the fact that small
employers that take advantage of the provisions in these regulations
will likely see a modest reduction in the cost of providing pensions to
their employees. Therefore, an analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations was submitted to the Chief
Counsel of Advocacy of the Small Business Administration for comment on
its impact on small business.
Drafting Information
The principal authors of these regulations are William D. Gibbs and
Pamela R. Kinard, Office of Division Counsel/Associate Chief Counsel
(Tax Exempt and Government Entities). However, other personnel from the
IRS and Treasury Department participated in the development of these
regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
0
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by revising
the sectional authority for Sec. 1.401(k)-3 to read as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.401(k)-3 is also issued under 26 U.S.C. 401(m)(9).
0
Par. 2. Section 1.401(k)-0 is amended by revising the entries for Sec.
1.401(k)-3(g), (g)(1) and (g)(2) to read as follows:
Sec. 1.401(k)-0. Table of contents.
* * * * *
Sec. 1.401(k)-3 Safe harbor requirements.
* * * * *
(g) Permissible reduction or suspension of safe harbor
contributions.
(1) General rule.
(i) Matching contributions.
(ii) Nonelective contributions.
(2) Supplemental notice.
* * * * *
0
Par. 3. Section 1.401(k)-3 is amended by:
0
1. Revising the second sentence in paragraph (e)(1).
[[Page 68738]]
0
2. Revising paragraphs (e)(4)(i) and (e)(4)(ii).
0
3. Revising paragraph (g).
The revisions read as follows:
Sec. 1.401(k)-3 Safe harbor requirements.
* * * * *
(e) * * * (1) * * * In addition, except as provided in paragraph
(g) of this section or in guidance of general applicability published
in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of
this chapter), a plan which includes provisions that satisfy the rules
of this section will not satisfy the requirements of Sec. 1.401(k)-
1(b) if it is amended to change such provisions for that plan year. * *
*
* * * * *
(4) * * *
(i) The plan would satisfy the requirements of paragraph (g) of
this section, treating the termination of the plan as a reduction or
suspension of safe harbor contributions, other than the requirements of
paragraph (g)(1)(i)(A) or (g)(1)(ii)(A) of this section (relating to
the employer's financial condition and information included in the
initial notice for the plan year) and paragraph (g)(1)(i)(D) or
(g)(1)(ii)(D) of this section (requiring that employees have a
reasonable opportunity to change their cash or deferred elections and,
if applicable, employee contribution elections); or
(ii) The plan termination is in connection with a transaction
described in section 410(b)(6)(C) or the employer incurs a substantial
business hardship comparable to a substantial business hardship
described in section 412(c).
* * * * *
(g) Permissible reduction or suspension of safe harbor
contributions--(1) General rule--(i) Matching contributions. A plan
that provides for safe harbor matching contributions intended to
satisfy the requirements of paragraph (c) of this section for a plan
year will not fail to satisfy the requirements of section 401(k)(3)
merely because the plan is amended during the plan year to reduce or
suspend safe harbor matching contributions on future elective
contributions (and, if applicable, employee contributions) provided
that--
(A) In the case of plan years beginning on or after January 1,
2015, the employer either--
(1) Is operating at an economic loss as described in section
412(c)(2)(A) for the plan year; or
(2) Includes in the notice described in paragraph (d) of this
section a statement that the plan may be amended during the plan year
to reduce or suspend safe harbor matching contributions and that the
reduction or suspension will not apply until at least 30 days after all
eligible employees are provided notice of the reduction or suspension;
(B) All eligible employees are provided a supplemental notice that
satisfies the requirements of paragraph (g)(2) of this section;
(C) The reduction or suspension of safe harbor matching
contributions is effective no earlier than the later of the date the
amendment is adopted or 30 days after eligible employees are provided
the supplemental notice described in paragraph (g)(2) of this section;
(D) Eligible employees are given a reasonable opportunity
(including a reasonable period after receipt of the supplemental
notice) prior to the reduction or suspension of safe harbor matching
contributions to change their cash or deferred elections and, if
applicable, their employee contribution elections;
(E) The plan is amended to provide that the ADP test will be
satisfied for the entire plan year in which the reduction or suspension
occurs using the current year testing method described in Sec.
1.401(k)-2(a)(2)(ii); and
(F) The plan satisfies the requirements of this section (other than
this paragraph (g)) with respect to amounts deferred through the
effective date of the amendment.
(ii) Nonelective contributions. For amendments adopted after May
18, 2009, a plan that provides for safe harbor nonelective
contributions intended to satisfy the requirements of paragraph (b) of
this section for the plan year will not fail to satisfy the
requirements of section 401(k)(3) merely because the plan is amended
during the plan year to reduce or suspend safe harbor nonelective
contributions provided that--
(A) The employer either--
(1) Is operating at an economic loss, as described in section
412(c)(2)(A) for the plan year; or
(2) Includes in the notice described in paragraph (d) of this
section a statement that the plan may be amended during the plan year
to reduce or suspend safe harbor nonelective contributions and that the
reduction or suspension will not apply until at least 30 days after all
eligible employees are provided notice of the reduction or suspension;
(B) All eligible employees are provided a supplemental notice that
satisfies the requirements of paragraph (g)(2) of this section;
(C) The reduction or suspension of safe harbor nonelective
contributions is effective no earlier than the later of the date the
amendment is adopted or 30 days after eligible employees are provided
the supplemental notice described in paragraph (g)(2) of this section;
(D) Eligible employees are given a reasonable opportunity
(including a reasonable period after receipt of the supplemental
notice) prior to the reduction or suspension of nonelective
contributions to change their cash or deferred elections and, if
applicable, their employee contribution elections;
(E) The plan is amended to provide that the ADP test will be
satisfied for the entire plan year in which the reduction or suspension
occurs using the current year testing method described in Sec.
1.401(k)-2(a)(2)(ii); and
(F) The plan satisfies the requirements of this section (other than
this paragraph (g)) with respect to safe harbor compensation paid
through the effective date of the amendment.
(2) Supplemental notice. The supplemental notice requirement of
this paragraph (g)(2) is satisfied if each eligible employee is given a
notice (in writing or such other form as prescribed by the
Commissioner) that explains--
(i) The consequences of the amendment that reduces or suspends
future safe harbor contributions;
(ii) The procedures for changing their cash or deferred elections
and, if applicable, their employee contribution elections; and
(iii) The effective date of the amendment.
* * * * *
0
Par. 4. Section 1.401(m)-0 is amended by revising the entries for Sec.
1.401(m)-3(h), (h)(1) and (h)(2), and adding entries for Sec.
1.401(m)-3(h)(1)(i) and (h)(1)(ii), to read as follows:
Sec. 1.401(m)-0 Table of contents.
* * * * *
Sec. 1.401(m)-3 Safe harbor requirements.
* * * * *
(h) Permissible reduction or suspension of safe harbor
contributions.
(1) General rule.
(i) Matching contributions.
(ii) Nonelective contributions.
(2) Supplemental notice.
* * * * *
0
Par. 5. Section 1.401(m)-3 is amended by:
0
1. Revising the second sentence in paragraph (f)(1).
0
2. Revising paragraphs (f)(4)(i) and (f)(4)(ii).
0
3. Revising paragraph (h).
The revisions read as follows:
Sec. 1.401(m)-3 Safe harbor requirements.
* * * * *
[[Page 68739]]
(f) * * * (1) * * * In addition, except as provided in paragraph
(h) of this section or in guidance of general applicability published
in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of
this chapter), a plan which includes provisions that satisfy the rules
of this section will not satisfy the requirements of Sec. 1.401(m)-
1(b) if it is amended to change such provisions for that plan year. * *
*
* * * * *
(4) * * *
(i) The plan would satisfy the requirements of paragraph (h) of
this section, treating the termination of the plan as a reduction or
suspension of safe harbor contributions, other than the requirements of
paragraph (h)(1)(i)(A) or (h)(1)(ii)(A) of this section (relating to
the employer's financial condition and information included in the
initial notice for the plan year) and paragraph (h)(1)(i)(D) or
(h)(1)(ii)(D) of this section (requiring that employees have a
reasonable opportunity to change their cash or deferred elections and,
if applicable, employee contribution elections); or
(ii) The plan termination is in connection with a transaction
described in section 410(b)(6)(C) or the employer incurs a substantial
business hardship, comparable to a substantial business hardship
described in section 412(c).
* * * * *
(h) Permissible reduction or suspension of safe harbor
contributions--(1) General rule--(i) Matching contributions. A plan
that provides for safe harbor matching contributions intended to
satisfy the requirements of paragraph (c) of this section for a plan
year will not fail to satisfy the requirements of section 401(m)(2)
merely because the plan is amended during the plan year to reduce or
suspend safe harbor matching contributions on future elective deferrals
(and, if applicable, employee contributions) provided that--
(A) In the case of plan years beginning on or after January 1,
2015, the employer either--
(1) Is operating at an economic loss as described in section
412(c)(2)(A) for the plan year; or
(2) Includes in the notice described in paragraph (e) of this
section, a statement that the plan may be amended during the plan year
to reduce or suspend safe harbor matching contributions and that the
reduction or suspension will not apply until at least 30 days after all
eligible employees are provided notice of the reduction or suspension;
(B) All eligible employees are provided a supplemental notice that
satisfies the requirements of paragraph (h)(2) of this section;
(C) The reduction or suspension of safe harbor matching
contributions is effective no earlier than the later of the date the
amendment is adopted or 30 days after eligible employees are provided
the supplemental notice described in paragraph (h)(2) of this section;
(D) Eligible employees are given a reasonable opportunity
(including a reasonable period after receipt of the supplemental
notice) prior to the reduction or suspension of safe harbor matching
contributions to change their cash or deferred elections and, if
applicable, their employee contribution elections;
(E) The plan is amended to provide that the ACP test will be
satisfied for the entire plan year in which the reduction or suspension
occurs using the current year testing method described in Sec.
1.401(m)-2(a)(2)(ii); and
(F) The plan satisfies the requirements of this section (other than
this paragraph (h)) with respect to amounts deferred through the
effective date of the amendment.
(ii) Nonelective contributions. For plan amendments adopted after
May 18, 2009, a plan that provides for safe harbor nonelective
contributions intended to satisfy the requirements of paragraph (b) of
this section will not fail to satisfy the requirements of section
401(m)(2) for the plan year merely because the plan is amended during
the plan year to reduce or suspend safe harbor nonelective
contributions provided that--
(A) The employer either--
(1) Is operating at an economic loss as described in section
412(c)(2)(A) for the plan year; or
(2) Includes in the notice described in paragraph (e) of this
section a statement that the plan may be amended during the plan year
to reduce or suspend safe harbor nonelective contributions and that the
reduction or suspension will not apply until at least 30 days after all
eligible employees are provided notice of the reduction or suspension;
(B) All eligible employees are provided a supplemental notice that
satisfies the requirements of paragraph (h)(2) of this section;
(C) The reduction or suspension of safe harbor nonelective
contributions is effective no earlier than the later of the date the
amendment is adopted or 30 days after eligible employees are provided
the supplemental notice described in paragraph (h)(2) of this section;
(D) Eligible employees are given a reasonable opportunity
(including a reasonable period after receipt of the supplemental
notice) prior to the reduction or suspension of nonelective
contributions to change their cash or deferred elections and, if
applicable, their employee contribution elections;
(E) The plan is amended to provide that the ACP test will be
satisfied for the entire plan year in which the reduction or suspension
occurs using the current year testing method described in Sec.
1.401(m)-2(a)(2)(ii); and
(F) The plan satisfies the requirements of this section (other than
this paragraph
(h)) with respect to safe harbor compensation paid through the
effective date of the amendment.
(2) Supplemental notice. The supplemental notice requirement of
this paragraph (h)(2) is satisfied if each eligible employee is given a
notice that satisfies the requirements of Sec. 1.401(k)-3(g)(2).
* * * * *
Beth Tucker,
Deputy Commissioner for Operations Support.
Approved: June 17, 2013.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-27452 Filed 11-14-13; 8:45 am]
BILLING CODE 4830-01-P