The rule changes impact non-elective and matching
contributions paid by employers to safe harbor accounts, which are designed to
allow employers to circumvent the most difficult non-discrimination standards
for qualified retirement plans so long as they make certain minimum
contributions to all eligible employees, among other stipulations.
In short, the changes ease interim regulations enacted in
the wake of the 2008-09 financial crisis to provide struggling businesses a way
to reduce or suspend non-elective contributions in the face of “substantial
Before the IRS enacted the interim regulations, businesses
had no way to reduce or eliminate non-elective contributions to safe harbor
plans in the middle of a plan year. Matching contributions, though, could be
cut or suspended at the mid-year point so long as 30-days’ notice was provided
to plan participants.
The new rules, says Robert Kaplan, an associate attorney at
Ballard Spahr LLP, are designed to alleviate confusion over what “substantial
business hardship” actually entails. Under the new regulations, businesses can
reduce or suspend safe harbor non-elective contributions at the mid-year point
so long as they are operating at an economic loss and provide sufficient notice
the new rules came out there was a bit of a problem, in that it was not clear
exactly what a substantial business hardship was,” Kaplan tells PLANSPONSOR.
“So only employers that were bankrupt or on the verge of going bankrupt felt
comfortable using the provision. The new standard is more objective, because
it’s obviously easier to determine if a company is operating at an economic
loss than it is to say they have suffered a substantial hardship.”