Companies facing financial hardship during the pandemic will be able to adjust the contributions they make to certain retirement plans on behalf of highly compensated employees, the IRS said.
Guidance issued Monday (Notice 2020-52) allows plan sponsors who maintain safe harbor 401(k) plans to suspend or reduce contributions by Aug. 31 without running afoul of existing notification requirements.
Safe harbor plans are qualified retirement programs funded primarily by employers rather than traditional 401(k)s that employees fill with their own money. Current law requires that safe harbor plan sponsors notify participants of any changes at least 30 days before they take effect.
The IRS said companies “operating at an economic loss” after March 13 can adjust contributions even if they haven’t given the affected individuals prior notice, so long as they send out a supplemental notice by Aug. 31. Plans that adopted amendments affecting non-elective and matching contributions dating back to March 13 are covered so long as the reduction or suspension doesn’t kick in until 30 days after affected participants have been notified.