401(K) Safe Harbor Plans


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A safe harbor 401(k) plan is otherwise identical to a traditional 401(k) plan, except that it must meet specific additional requirements under the Internal Revenue Code, such as:

For most safe harbor arrangements, one of those requirements is an annual notice requirement. The main benefit of providing a safe harbor 401(k) plan to employers is that, assuming all requirements (including the annual notice requirement) are met, participant elective deferrals and any safe harbor employer contributions are not subject to certain of the complex annual nondiscrimination tests that apply to traditional 401(k) plans such as ADP/ACP Testing and Top-Heavy Testing.

Special Notice Requirements Applicable to Restrictions on Mid-Year Amendments

The purpose of the safe-harbor notice is to describe the terms of the plan, including the safe harbor contributions provided, for the upcoming plan year. In order to ensure that those plan terms continue for the entire plan year, the IRS does not generally permit safe-harbor plan terms to be amended mid-year, unless the mid-year changes are expressly permitted under IRS guidance.

A plan sponsor should always consult with legal counsel to determine if a desired mid-year plan amendment is permitted under a safe-harbor plan. The following is a partial list of some of the more common exceptions with respect to mid-year amendments which have been covered by recent IRS guidance:

If the mid-year change is to a plan’s required safe harbor notice content, the plan sponsor generally must:

The safe harbor notice may be delivered electronically. The requirements for electronic delivery are set forth in Treas. Reg. § 1.401(a)-21. Additional information is also available in the reference material.

One optional variation on the non-elective contribution safe harbor is the “wait-and-see” approach. Under this alternative, the employer typically waits until close to the end of the plan year, when it can run preliminary nondiscrimination tests for the plan year, to decide whether it would be beneficial to the employer to amend the plan to provide the 3% safe harbor non-elective contribution for that year.

Reductions or Suspensions of Safe Harbor Contributions in Response to COVID-19

In response to the COVID-19 crisis, the IRS is permitting temporary reductions or suspensions of either safe harbor matching contributions or safe harbor non-elective contributions, without violating the general rule limiting midyear amendments (see above), provided the amendment is adopted between March 13, 2020, and August 31, 2020. Further, in the case of safe harbor non-elective contributions only, the supplemental notice requirement is eliminated.

Exempt Safe Harbor Arrangements

On and after January 1, 2020, the SECURE Act provides that the annual notice requirement described herein does not apply to certain safe harbor non-elective contribution arrangements. Specifically, if a 401(k) plan provides for a safe harbor non-elective contribution equal to at least 3% of participant compensation, then the annual notice requirement does not apply.