When a Safe Harbor becomes Unsafe


The Internal Revenue Service this week issued proposed regulations that would permit the reduction or suspension of safe harbor nonelective contributions (SHC's) by an employer that sponsors a "safe harbor" 401(k) plan if the employer incurs a "substantial business hardship" (as described in the proposed regulations). This gives an employer an alternative to terminating its safe harbor plan just because it cannot afford to make a contribution. The proposed regulations would allow for the reduction or suspension of safe harbor nonelective contributions and safe harbor matching contributions under substantially identical rules. Under the proposed regulations, reducing or suspending safe harbor nonelective contributions will not cause the plan to fail to satisfy section 401(k), provided that the following five conditions are satisfied...

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