[Federal Register Volume 74, Number 94 (Monday, May 18, 2009)]
[Proposed Rules]
[Pages 23134-23139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-11481]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-115699-09]
RIN:1545-BI64
Suspension or Reduction of Safe Harbor Nonelective Contributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed amendments to the regulations
relating to certain cash or deferred arrangements and matching
contributions under section 401(k) plans and section 403(b) plans.
These regulations affect administrators of, employers maintaining,
participants in, and beneficiaries of certain section 401(k) plans and
section 403(b) plans.
DATES: Written or electronic comments must be received by August 17,
2009. Outlines of the topics to be discussed at the public hearing
scheduled for Wednesday, September 23, 2009, at 10 a.m. must be
received by August 19, 2009.
ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-115699-09), Room 5203,
Internal Revenue Service, PO Box 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday through
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
115699-09), Courier's Desk, Internal Revenue Service, 1111 Constitution
Avenue, NW., Washington, DC 20224 or sent electronically via the
Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-
115699-09).
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, R. Lisa
Mojiri-Azad, Dana Barry or William D. Gibbs at (202) 622-6060;
concerning the submission of comments or to request a public hearing,
[email protected], (202) 622-7180 (not toll-free
numbers).
SUPPLEMENTARY INFORMATION:
[[Page 23135]]
Paperwork Reduction Act
The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the collection of information should be
sent to the Office of Management and Budget, Attn: Desk Officer for the
Department of the Treasury, Office of Information and Regulatory
Affairs, Washington, DC 20503, with copies to the Internal Revenue
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP;
Washington, DC 20224. Comments on the collection of information should
be received by July 17, 2009. Comments are specifically requested
concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed
collection of information;
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collections of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of operation,
maintenance, and purchase of service to provide information.
The collection of information in these proposed regulations is in
Sec. 1.401(k)-3. The collection relates to the new supplemental notice
in the case of a reduction or suspension of safe harbor nonelective
contributions. The likely recordkeepers are businesses or other for-
profit institutions, nonprofit institutions, organizations, and state
or local governments.
Estimated total average annual recordkeeping burden: 5,000 hours.
Estimated average annual burden hours per recordkeeper: 1 hour.
Estimated number of recordkeepers: 5,000.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless it displays a valid
control number assigned by the Office of Management and Budget.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains proposed amendments to regulations under
sections 401(k) and 401(m) of the Internal Revenue Code.
Section 401(k)(1) provides that a profit-sharing, stock bonus, pre-
ERISA money purchase, or rural cooperative plan will not fail to
qualify under section 401(a) merely because it contains a qualified
cash or deferred arrangement. Section 1.401(k)-1(a)(2) defines a cash
or deferred arrangement (CODA) as an arrangement under which an
eligible employee may make a cash or deferred election with respect to
contributions to, or accruals or other benefits under, a plan that is
intended to satisfy the requirements of section 401(a). Contributions
that are made pursuant to a cash or deferred election under a qualified
CODA are commonly referred to as elective contributions.
In order for a CODA to be a qualified CODA, it must satisfy a
number of requirements. For example, contributions under the CODA must
satisfy either the nondiscrimination test set forth in section
401(k)(3), called the actual deferral percentage (ADP) test, or one of
the design-based alternatives in section 401(k)(11), 401(k)(12), or
401(k)(13). Under the ADP test, the average percentage of compensation
deferred for eligible highly compensated employees (HCEs) is compared
to the average percentage of compensation deferred for eligible
nonhighly compensated employees (NHCEs), and if certain deferral
percentage limits are exceeded with respect to HCEs, corrective action
must be taken.
Section 401(k)(12) provides a design-based safe harbor method under
which a CODA is treated as satisfying the ADP test if the arrangement
meets certain contribution and notice requirements. A plan satisfies
this safe harbor method if the employer makes specified qualified
matching contributions (QMACs) for all eligible NHCEs. The employer can
make QMACs under a basic matching formula that provides for QMACs on
behalf of each eligible NHCE equal to 100% of the employee's elective
contributions that do not exceed 3% of compensation and 50% of the
employee's elective contributions that exceed 3% but do not exceed 5%
of compensation. Alternatively, the employer can make QMACs under an
enhanced matching formula that provides, at each rate of elective
contributions, for an aggregate amount of QMACs that is at least as
generous as under the basic matching formula, but only if the rate of
QMACs under the enhanced matching formula does not increase as the
employee's rate of elective contributions increases. In lieu of QMACs,
the plan is permitted to provide qualified nonelective contributions
(QNECs) equal to 3% of compensation for all eligible NHCEs. In
addition, notice must be provided to each eligible employee, within a
reasonable period before the beginning of the plan year, of the
employee's rights and obligations under the plan.
Section 401(k)(13), as added by section 902 of the Pension
Protection Act of 2006, Public Law 109-280 (PPA '06), provides an
alternative design-based safe harbor for a CODA that provides for
automatic contributions at a specified level and meets certain employer
contribution and notice requirements. Similar to the design-based safe
harbor under section 401(k)(12), section 401(k)(13) provides a choice
for an employer between satisfying a matching contribution requirement
or a nonelective contribution requirement. Under the matching
contribution requirement, the employer can make matching contributions
under a basic matching formula that provides for matching contributions
on behalf of each eligible NHCE equal to 100% of the employee's
elective contributions that do not exceed 1% of compensation and 50% of
the employee's elective contributions that exceed 1% but do not exceed
6% of compensation. Alternatively, the employer can make matching
contributions under an enhanced matching formula that provides, at each
rate of elective contributions, for an aggregate amount of matching
contributions that is at least as generous as under the basic matching
formula at such rate, but only if the rate of matching contributions
under the enhanced matching formula does not increase as the employee's
rate of elective contributions increases. In addition, the plan must
satisfy a notice requirement under section 401(k)(13) that is similar
to the notice requirement under section 401(k)(12).
Except as discussed elsewhere in this preamble, a plan that uses
one of these safe harbor methods under section 401(k)(12) or (13) must
specify, before the beginning of the plan year, whether the safe harbor
contribution will be the safe harbor nonelective contribution or the
safe harbor matching contribution and is not permitted to provide that
ADP testing will be used if the requirements for the safe harbor are
not satisfied.
[[Page 23136]]
Section 401(m) sets forth a nondiscrimination requirement that
applies to a plan providing for matching contributions or employee
contributions. Such a plan must satisfy either the nondiscrimination
test set forth in section 401(m)(2), called the actual contribution
percentage (ACP) test, or one of the design-based alternatives in
section 401(m)(10), 401(m)(11), or 401(m)(12). The ACP test in section
401(m)(2) is comparable to the ADP test in section 401(k)(3).
Under section 401(m)(11), a defined contribution plan is treated as
satisfying the ACP test with respect to matching contributions if the
plan satisfies the ADP safe harbor of section 401(k)(12) and certain
other requirements are satisfied. Similarly, under section 401(m)(12),
as added by section 902 of PPA '06, a defined contribution plan that
provides for automatic contributions at a specified level is treated as
meeting the ACP test with respect to matching contributions if the plan
satisfies the ADP safe harbor of section 401(k)(13) and certain other
requirements are satisfied.
Section 403(b) provides favorable tax treatment for the purchase of
annuity contracts that satisfy certain requirements. Pursuant to
sections 403(b)(1)(D) and 403(b)(12)(A)(i), the purchase of an annuity
contract (other than a purchase by a church) is eligible for this
favorable tax treatment only if it is part of a plan that meets the
requirements of section 401(m), as if it were a qualified plan under
section 401(a).
Final regulations under sections 401(k) and 401(m) were published
on December 29, 2004. Sections 1.401(k)-3 and 1.401(m)-3 set forth the
requirements for a safe harbor plan under sections 401(k)(12) and
401(m)(11), respectively. On February 24, 2009, these regulations were
amended to reflect sections 401(k)(13) and 401(m)(12) (74 FR 8200).
Sections 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1) provide that subject
to certain exceptions, a safe harbor plan must be adopted before the
beginning of the plan year and be maintained throughout a full 12-month
plan year. Accordingly, if, at the beginning of the plan year, a plan
contains an allocation formula that includes safe harbor matching or
safe harbor nonelective contributions, then the plan may not be amended
to revert to ADP or ACP testing for the plan year (except to the extent
permitted under Sec. Sec. 1.401(k)-3 and 1.401(m)-3).
Sections 1.401(k)-3(f) and 1.401(m)-3(g) permit a plan that
provides for the use of the current year ADP or ACP testing method to
be amended after the first day of the plan year to adopt the safe
harbor method under Sec. 1.401(k)-3 or Sec. 1.401(m)-3 using safe
harbor nonelective contributions, effective as of the first day of the
plan year, if certain requirements are satisfied. In particular, the
amendment must be adopted no later than 30 days before the last day of
the plan year, and the plan must satisfy specified contingent and
follow-up notice requirements. Under Sec. Sec. 1.401(k)-3(f) and
1.401(m)-3(g), a plan satisfies the contingent notice requirement if
the notice is provided before the plan year and specifies that the plan
may be amended during the plan year to include the safe harbor
nonelective contribution and that, if the plan is amended, a follow-up
notice will be provided. A plan satisfies the follow-up notice
requirement if, no later than 30 days before the last day of the plan
year, each eligible employee is given a notice that states that the
safe harbor nonelective contributions will be made for the plan year.
A plan that provides for safe harbor matching contributions will
not fail to satisfy section 401(k)(3) or section 401(m)(2) for a plan
year merely because the plan is amended during the plan year to reduce
or suspend safe harbor matching contributions on future elective
contributions, as long as the requirements under Sec. 1.401(k)-3(g) or
Sec. 1.401(m)-3(h) are met. Under these regulations: a notice must be
provided to all eligible employees regarding the reduction or
suspension of safe harbor matching contributions; the reduction or
suspension of safe harbor matching contributions must be effective no
earlier than the later of 30 days after eligible employees are provided
the notice and the date the amendment is adopted; eligible employees
must be given a reasonable opportunity prior to the reduction or
suspension of safe harbor matching contributions to change their cash
or deferred elections and, if applicable, their employee contribution
elections; the plan must be amended to provide that the applicable
nondiscrimination tests will be satisfied for the entire plan year; and
the plan must satisfy the requirements of Sec. Sec. 1.401(k)-3 and
1.401(m)-3 (other than Sec. Sec. 1.401(k)-3(g) and 1.401(m)-3(h)) with
respect to amounts deferred through the effective date of the
amendment.
Sections 1.401(k)-3(e)(4) and 1.401(m)-3(f)(4) provide that, if a
plan terminates during a plan year, the plan will not fail to satisfy
the requirements of Sec. Sec. 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1)
merely because the final plan year is less than 12 months, provided
that the plan satisfies the requirements of Sec. Sec. 1.401(k)-3 and
1.401(m)-3 through the date of termination and either (1) the plan
would have satisfied the requirements applicable to a plan amendment to
reduce or suspend safe harbor matching contributions (other than the
requirement that employees have a reasonable opportunity to change
their cash or deferred elections and, if applicable, employee
contribution elections) or (2) the termination is in connection with a
transaction described in section 410(b)(6)(C) or the employer incurs a
substantial business hardship (comparable to a substantial business
hardship described in section 412(d) \1\).
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\1\ The definition of substantial business hardship in section
412(d) was relocated to become part of section 412(c) by section 111
of the Pension Protection Act of 2006, Public Law 109-280.
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Section 416 sets forth the rules for top-heavy plans. Section
416(g)(4)(H) provides that a top-heavy plan will not include a plan
which consists solely of a cash or deferred arrangement that meets the
requirements of section 401(k)(12) or 401(k)(13) and matching
contributions with respect to which the requirements of section
401(m)(11) or 401(m)(12) are met.
Explanation of Provisions
The proposed regulations would amend Sec. Sec. 1.401(k)-3 and
1.401(m)-3 to permit an employer sponsoring a safe harbor plan
described in section 401(k)(12) or 401(k)(13) that incurs a substantial
business hardship (comparable to a substantial business hardship
described in section 412(c)) to reduce or suspend safe harbor
nonelective contributions during a plan year. These proposed
regulations would provide an employer an alternative to the option of
terminating the employer's safe harbor plan in such a situation.
The proposed regulations would allow for the reduction or
suspension of safe harbor nonelective contributions under rules
generally comparable to the provisions relating to the reduction or
suspension of safe harbor matching contributions. Under these rules, a
plan that reduces or suspends safe harbor nonelective contributions
will not fail to satisfy section 401(k)(3), provided that: (1) All
eligible employees are provided a supplemental notice of the reduction
or suspension; (2) the reduction or suspension of safe harbor
nonelective contributions is effective no earlier than the later of 30
days after eligible employees are provided the supplemental notice and
the date the amendment is adopted; (3) eligible employees are given a
reasonable opportunity (including a reasonable
[[Page 23137]]
period after receipt of the supplemental notice) prior to the reduction
or suspension of the safe harbor nonelective contributions to change
their cash or deferred elections and, if applicable, their employee
contribution elections; (4) the plan is amended to provide that the ADP
test will be satisfied for the entire plan year in which the reduction
or suspension occurs, using the current year testing method; and (5)
the plan satisfies the safe harbor nonelective contribution requirement
with respect to safe harbor compensation paid through the effective
date of the amendment. The proposed regulations would also provide that
the supplemental notice requirement is satisfied if each eligible
employee is given a notice that explains: (1) The consequences of the
amendment reducing or suspending future safe harbor nonelective
contributions; (2) the procedures for changing cash or deferred
elections and, if applicable, employee contribution elections; and (3)
the effective date of the amendment.
The proposed regulations would further provide that these same
rules that apply to safe harbor plans under Sec. 1.401(k)-3 also apply
to safe harbor plans under Sec. 1.401(m)-3, except that the plan must
be amended to provide that the ACP test will be satisfied for the
entire plan year in which the reduction or suspension occurs using the
current year testing method.
Because the reduction or suspension of safe harbor contributions
can be effective no earlier than the later of 30 days after the notice
is provided to all eligible employees and the date the amendment is
adopted, an employer that wants to reduce or suspend safe harbor
contributions during a year could not implement this change by adopting
the amendment at the end of the plan year. In addition, a plan that is
amended during the plan year to reduce or suspend safe harbor
contributions (whether nonelective contributions or matching
contributions) must prorate the otherwise applicable compensation limit
under section 401(a)(17) in accordance with the requirements of Sec.
1.401(a)(17)-1(b)(3)(iii)(A). Furthermore, a plan that is amended to
reduce or suspend safe harbor contributions is no longer a plan
described in section 401(k)(12), 401(k)(13), 401(m)(11), or 401(m)(12)
for the entire plan year. Accordingly, such a plan is not described in
section 416(g)(4)(H) and, thus, will be subject to the top-heavy rules
under section 416.
Proposed Effective Date
These regulations are proposed to be effective for amendments
adopted after May 18, 2009. Taxpayers may rely on these proposed
regulations for guidance pending the issuance of final regulations. If,
and to the extent, the final regulations are more restrictive than the
guidance in these proposed regulations, those provisions of the final
regulations will be applied without retroactive effect.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has been
determined that 5 U.S.C. 533(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations. It is hereby
certified that the collection of information in these proposed
regulations will not have a significant economic impact on a
substantial number of small entities. The proposed regulations impact
on small businesses is as follows. A pension consultant or attorney
must read the regulation. He must then communicate this information to
the small business owner. The small business owner must then decide if
he wants to reduce nonelective contributions to its safe harbor plan.
Once this decision is made, the pension consultant or attorney must
draft the notice to employees and the small business must make sure
that the employees receive the notice.
We estimate that the cost to do these tasks is $500-$1000. If the
small business owner can implement this program by July 1, 2009, he
will save 1.5% of his payroll for 2009. A small business with an annual
payroll of $1,000,000 can save $15,000 in 2009. Thus, adopting the
provisions in these regulation will in almost all cases save the small
business owner money. Therefore, an analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, these
regulations have been submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comments on its impact on small
business.
Comments and Requests for Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written (one signed and eight (8)
copies) or electronic comments that are submitted timely to the IRS.
The IRS and Treasury Department specifically request comments on the
clarity of the proposed rules and how they can be made easier to
understand.
The current regulations, in describing the requirement for safe
harbor plans that a notice be provided before the beginning of the plan
year, do not address the possibility that safe harbor contributions may
be reduced or suspended during the year. Since, under these
regulations, safe harbor nonelective contributions, as well as safe
harbor matching contributions, can be reduced or suspended during the
plan year under certain circumstances, the IRS and Treasury are
considering adding to the minimum content listing in Sec. 1.401(k)-
3(d)(2)(ii), a requirement that the possibility of reduced or suspended
safe harbor contributions be described in the notice required to be
provided before the beginning of the plan year (except in the case of a
contingent notice described in Sec. 1.401(k)-3(f)). If adopted, the
requirement that the notice describe the possibility of reduced or
suspended safe harbor contributions would not apply for plan years
beginning before January 1, 2010. The IRS and Treasury specifically
request comments on whether the additional content requirement should
be added to the regulations.
A public hearing has been scheduled for September 23, 2009, at 10
a.m. in the IRS Auditorium, Internal Revenue Building, 1111
Constitution Avenue, NW., Washington, DC. Due to building security
procedures, visitors must enter at the Constitution Avenue entrance. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. For information about having your name placed on the
building access list to attend the hearing, see the FOR FURTHER
INFORMATION CONTACT section of this preamble.
Persons who wish to present oral comments at the hearing must
submit written or electronic comments and submit an outline of the
topics to be discussed and the amount of time to be devoted to each
topic (a signed original and eight (8) copies) by August 19, 2009. A
period of 10 minutes will be allotted to each person for making
comments.
An agenda showing the scheduling of the speakers will be prepared
after the deadline for receiving outlines has passed. Copies of the
agenda will be available free of charge at the hearing.
[[Page 23138]]
Drafting Information
The principal authors of these regulations are Dana Barry, William
Gibbs, and Lisa Mojiri-Azad, Office of Division Counsel/Associate Chief
Counsel (Tax Exempt and Government Entities). However, other personnel
from the IRS and Treasury Department participated in the development of
these regulations.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended to read
as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.401(k)-3 is also issued under 26 U.S.C. 401(m)(9).
Par. 2. Section 1.401(k)-0 is amended by revising the entries for
Sec. 1.401(k)-3(g), (g)(1) and (g)(2) to read as follows:
Sec. 1.401(k)-0 Table of Contents.
* * * * *
Sec. 1.401(k)-3 Safe harbor requirements.
* * * * *
(g) Permissible reduction or suspension of safe harbor
contributions.
(1) General rule.
(i) Matching contributions.
(ii) Nonelective contributions.
(2) Supplemental notice.
* * * * *
Par. 3. Section 1.401(k)-3 is amended by:
1. Revising paragraph (e)(4)(ii).
2. Revising paragraph (g).
The revisions read as follows:
Sec. 1.401(k)-3 Safe harbor requirements.
* * * * *
(e) * * *
(4) * * *
(ii) The plan termination is in connection with a transaction
described in section 410(b)(6)(C) or the employer incurs a substantial
business hardship comparable to a substantial business hardship
described in section 412(c).
* * * * *
(g) Permissible reduction or suspension of safe harbor
contributions--(1) General rule--(i) Matching contributions. A plan
that provides for safe harbor matching contributions intended to
satisfy the requirements of paragraph (c) of this section for a plan
year will not fail to satisfy the requirements of section 401(k)(3)
merely because the plan is amended during the plan year to reduce or
suspend safe harbor matching contributions on future elective
contributions (and, if applicable, employee contributions) provided
that--
(A) All eligible employees are provided the supplemental notice in
accordance with paragraph (g)(2) of this section;
(B) The reduction or suspension of safe harbor matching
contributions is effective no earlier than the later of 30 days after
eligible employees are provided the supplemental notice described in
paragraph (g)(2) of this section and the date the amendment is adopted;
(C) Eligible employees are given a reasonable opportunity
(including a reasonable period after receipt of the supplemental
notice) prior to the reduction or suspension of safe harbor matching
contributions to change their cash or deferred elections and, if
applicable, their employee contribution elections;
(D) The plan is amended to provide that the ADP test will be
satisfied for the entire plan year in which the reduction or suspension
occurs using the current year testing method described in Sec.
1.401(k)-2(a)(2)(ii); and
(E) The plan satisfies the requirements of this section (other than
this paragraph (g)) with respect to amounts deferred through the
effective date of the amendment.
(ii) Nonelective contributions. A plan that provides for safe
harbor nonelective contributions intended to satisfy the requirements
of paragraph (b) of this section for the plan year will not fail to
satisfy the requirements of section 401(k)(3) merely because the plan
is amended during the plan year to reduce or suspend safe harbor
nonelective contributions provided that--
(A) The employer incurs a substantial business hardship (comparable
to a substantial business hardship described in section 412(c));
(B) The amendment is adopted after May 18, 2009;
(C) All eligible employees are provided the supplemental notice in
accordance with paragraph (g)(2) of this section;
(D) The reduction or suspension of safe harbor nonelective
contributions is effective no earlier than the later of 30 days after
eligible employees are provided the supplemental notice described in
paragraph (g)(2) of this section and the date the amendment is adopted;
(E) Eligible employees are given a reasonable opportunity
(including a reasonable period after receipt of the supplemental
notice) prior to the reduction or suspension of nonelective
contributions to change their cash or deferred elections and, if
applicable, their employee contribution elections;
(F) The plan is amended to provide that the ADP test will be
satisfied for the entire plan year in which the reduction or suspension
occurs using the current year testing method described in Sec.
1.401(k)-2(a)(2)(ii); and
(G) The plan satisfies the requirements of this section (other than
this paragraph (g)) with respect to safe harbor compensation paid
through the effective date of the amendment.
(2) Supplemental notice. The supplemental notice requirement of
this paragraph (g)(2) is satisfied if each eligible employee is given a
notice (in writing or such other form as prescribed by the
Commissioner) that explains--
(i) The consequences of the amendment which reduces or suspends
future safe harbor contributions;
(ii) The procedures for changing their cash or deferred elections
and, if applicable, their employee contribution elections; and
(iii) The effective date of the amendment.
Par. 4. Section 1.401(m)-0 is amended by revising the entries for
Sec. 1.401(m)-3(h), (h)(1) and (h)(2) in their entirety to read as
follows:
Sec. 1.401(m)-0 Table of Contents.
* * * * *
Sec. 1.401(m)-3 Safe Harbor Requirements.
* * * * *
(h) Permissible reduction or suspension of safe harbor
contributions.
(1) General rule.
(i) Matching contributions.
(ii) Nonelective contributions.
(2) Supplemental notice.
* * * * *
Par. 5. Section 1.401(m)-3 is amended by:
1. Revising paragraph (f)(4)(ii).
2. Revising paragraph (h).
The revisions read as follows:
Sec. 1.401(m)-3 Safe harbor requirements.
* * * * *
(f) * * *
(4) * * *
(ii) The plan termination is in connection with a transaction
described in section 410(b)(6)(C) or the employer incurs a substantial
business hardship, comparable to a substantial business hardship
described in section 412(c).
* * * * *
(h) Permissible reduction or suspension of safe harbor
contributions--(1) General rule--(i) Matching contributions. A plan
that provides for safe harbor matching
[[Page 23139]]
contributions intended to satisfy the requirements of paragraph (c) of
this section for a plan year will not fail to satisfy the requirements
of section 401(m)(2) merely because the plan is amended during the plan
year to reduce or suspend safe harbor matching contributions on future
elective deferrals and, if applicable, employee contributions provided
that--
(A) All eligible employees are provided the supplemental notice in
accordance with paragraph (h)(2) of this section;
(B) The reduction or suspension of safe harbor matching
contributions is effective no earlier than the later of 30 days after
eligible employees are provided the supplemental notice described in
paragraph (h)(2) of this section and the date the amendment is adopted;
(C) Eligible employees are given a reasonable opportunity
(including a reasonable period after receipt of the supplemental
notice) prior to the reduction or suspension of safe harbor matching
contributions to change their cash or deferred elections and, if
applicable, their employee contribution elections;
(D) The plan is amended to provide that the ACP test will be
satisfied for the entire plan year in which the reduction or suspension
occurs using the current year testing method described in Sec.
1.401(m)-2(a)(2)(ii); and
(E) The plan satisfies the requirements of this section (other than
this paragraph (h)) with respect to amounts deferred through the
effective date of the amendment.
(ii) Nonelective contributions. A plan that provides for safe
harbor nonelective contributions intended to satisfy the requirements
of paragraph (b) of this section will not fail to satisfy the
requirements of section 401(m)(2) for the plan year merely because the
plan is amended during the plan year to reduce or suspend safe harbor
nonelective contributions provided that--
(A) The employer incurs a substantial business hardship (comparable
to a substantial business hardship described in section 412(c));
(B) The amendment is adopted after May 18, 2009;
(C) All eligible employees are provided the supplemental notice in
accordance with paragraph (h)(2) of this section;
(D) The reduction or suspension of safe harbor nonelective
contributions is effective no earlier than the later of 30 days after
eligible employees are provided the supplemental notice described in
paragraph (h)(2) of this section and the date the amendment is adopted;
(E) Eligible employees are given a reasonable opportunity
(including a reasonable period after receipt of the supplemental
notice) prior to the reduction or suspension of nonelective
contributions to change their cash or deferred elections and, if
applicable, their employee contribution elections;
(F) The plan is amended to provide that the ACP test will be
satisfied for the entire plan year in which the reduction or suspension
occurs using the current year testing method described in Sec.
1.401(m)-2(a)(2)(ii); and
(G) The plan satisfies the requirements of this section (other than
this paragraph (h)) with respect to safe harbor compensation paid
through the effective date of the amendment.
(2) Supplemental notice. The supplemental notice requirement of
this paragraph (h)(2) is satisfied if each eligible employee is given a
notice that satisfies the requirements of Sec. 1.401(k)-3(g)(2).
Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E9-11481 Filed 5-15-09; 8:45 am]
BILLING CODE 4830-01-P