While Safe Harbor 401(k) Plans have become increasingly popular, the IRS rules concerning mid-year amendments to such plans were ambiguous and created uncertainty among the benefits community. In 2016, the IRS issued guidance that allows for most mid-year amendments, which is a welcome development for plan sponsors.
The rules in question involved the ability of such plans to make changes (amendments) to their plans during the year. In general, retirement plans may be amended during the current year to add or change provisions as the sponsor deems worthwhile. For example, if an employer decided to add Participant Loans to their plan, that could be added during the current year by adopting a plan amendment. However, the rules regarding Safe Harbor 401(k) Plans seemed to indicate that no such amendments could be made during the current year and would have to wait until the beginning of the following plan year. This is even though a provision such as adding loans would not change the nature of the Safe Harbor contributions, nor the content of the Safe Harbor Notice.
IRS Notice 2016-16 clarifies that amendments (with a few specific exceptions) may be made during the current plan year for a Safe Harbor 401(k). The important thing to keep in mind, however, is that if an amendment changes a provision in the Safe Harbor Notice, then a new Notice must be provided to participants (30-90 days prior to effective date) and participants need to be given a reasonable opportunity to change their elections.