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July 15, 2020

IRS releases guidance on mid-year reductions and suspensions of contributions to safe harbor 401(k) and 403(b) plans

The IRS clarified (Notice 2020-52) that safe harbor 401(k) and 403(b) plan sponsors can make mid-year amendments to reduce or suspend matching and nonelective contributions without violating plan requirements if those amendments are adopted between March 13, 2020 and August 31, 2020, and certain requirements are met.


Sponsors of employee benefit plans can comply with nondiscrimination rules by either using a safe harbor design or doing nondiscrimination testing. Safe harbor 401(k) and 403(b) plans allow plan sponsors to comply with nondiscrimination rules by making certain matching or nonelective contributions for employees. Safe harbor plan provisions must generally be adopted irrevocably before the first day of the plan year. Thus, a plan sponsor generally may not amend a plan mid-year to reduce or eliminate safe harbor matching or nonelective contributions and use discrimination testing instead.

Plan sponsors, however, can make mid-year amendments reducing or suspending safe harbor matching or nonelective contributions if:

  • The employer is operating at an economic loss (economic loss requirement) or,
  • The plan's safe harbor notice allows the plan to be amended during the plan year to reduce or suspend safe harbor contributions (general notification requirement) and delays that reduction or suspension until at least 30 days after eligible employees are given a supplemental notice of the reduction or suspension (supplemental notification requirement)

According to the IRS, employers indicated that they may need to reduce or suspend contributions under their safe harbor plans due to COVID-19 to meet payroll and other operating costs.

IRS gives temporary relief

The IRS noted that a mid-year change reducing only contributions for highly compensated employees does not violate safe harbor plan requirements because those contributions are not included in the definition of safe harbor contributions. Plan sponsors must, however, give an updated safe harbor notice and an election opportunity to those highly compensated employees to whom the mid-year change applies.

Sponsors of plans that allow safe harbor matching or nonelective contributions may adopt, between March 13, 2020, and August 31, 2020, a plan amendment reducing or suspending those contributions without violating the economic loss requirement or the general notification requirement.

When suspending or reducing nonelective contributions, the plan does not have to satisfy the supplemental notification requirement if: (1) the plan gives a supplemental notice to eligible employees no later than August 31, 2020, and (2) the plan amendment is adopted no later than the effective date of the reduction or suspension. This relief for supplemental notices does not apply to matching contributions due to the relevance to employee decisions on elective contributions.


The CARES Act provided funding relief for defined benefit pension plans, but not defined contribution plans, for 2020. While defined contribution plans have no "funding" requirements and thus do not need "funding" relief, safe harbor 401(k) and 403(b) plans do have certain mandatory contributions that can only be avoided under limited circumstances. Notice 2020-52 makes it easier for an employer with one of these plans to avoid making otherwise mandatory contributions without disqualifying the plan. Of course, employers may want to consider other factors — such as overall compensation philosophy and employee relations, in addition to the employer's financial performance — when deciding whether to take advantage of this relief.

As additional pandemic-related relief measures continue to be debated in Congress, it is unclear whether additional retirement plan relief may be provided and what form it might take. In addition, as the IRS acknowledges, Notice 2020-52 does not address the impact of Section 103 of the SECURE Act (enacted on December 20, 2019), which eliminated the safe harbor notice requirement for nonelective contributions for plan years beginning after December 31, 2019. Thus, Congress and the IRS may have more to say on these issues.


Contact Information
For additional information concerning this Alert, please contact:
Compensation and Benefits Group
   • Christa Bierma (
   • Stephen Lagarde (
   • Rachael Walker (
   • Bing Luke (
   • Andrew Leeds (