February 4, 2016

IRS Opens Door for Mid-Year Changes to §401(k) and §403(b) Safe-Harbor Plans

On January 29, 2016, the Internal Revenue Service (IRS) released Notice 2016-16, removing most of the barriers to mid-year plan amendments for “safe-harbor” §401(k) and §403(b) plans (provided that specified notice and election requirements are satisfied). Safe harbor plans avoid the need to perform certain nondiscrimination tests by using one of several safe-harbor plan designs set out in the Internal Revenue Code. Under prior guidance, sponsors could amend these plans for changes effective mid-year (i.e., effective any day after the first day of the plan year, only in limited situations and for limited purposes).

Generally, under the Notice, sponsors can make mid-year amendments if they also provide an updated safe-harbor notice and a new election opportunity to each employee otherwise required to be provided with an annual safe-harbor notice. No notice or election is required if the change is not to a provision that must be described in the annual safe-harbor notice. The prior rules continue to apply to certain types of mid-year amendments. 

The Notice is effective for amendments made on and after January 29, 2016. Comments on the Notice are requested by April 28, 2016, including comments on whether further guidance is needed with respect to mergers and acquisitions.

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