Reduction or Suspension of Safe Harbor Contributions, 68735-68739 [2013-27452]

Download as PDF Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Rules and Regulations DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Part 1 [TD 9641] RIN 1545–BI64 Reduction or Suspension of Safe Harbor Contributions Internal Revenue Service (IRS), Treasury. ACTION: Final Regulations. AGENCY: This document contains amendments to regulations relating to certain cash or deferred arrangements under section 401(k) and matching contributions and employee contributions under section 401(m). These regulations provide guidance on permitted mid-year reductions or suspensions of safe harbor nonelective contributions in certain circumstances for amendments adopted after May 18, 2009. These regulations also revise the requirements for permitted mid-year reductions or suspensions of safe harbor matching contributions for plan years beginning on or after January 1, 2015. The regulations affect administrators of, employers maintaining, participants in, and beneficiaries of certain defined contribution plans that satisfy the nondiscrimination tests of section 401(k) and section 401(m) using one of the design-based safe harbors. DATES: Effective Date: These regulations are effective on November 15, 2013. Applicability Date: These regulations generally apply to amendments adopted after May 18, 2009. The amendments to the requirements for permitted mid-year reductions or suspensions of safe harbor matching contributions apply for plan years beginning on or after January 1, 2015. FOR FURTHER INFORMATION CONTACT: William D. Gibbs at (202) 622–6060 (not a toll-free number). SUPPLEMENTARY INFORMATION: emcdonald on DSK67QTVN1PROD with RULES SUMMARY: Paperwork Reduction Act The collection of information contained in these final regulations has been reviewed and approved by the Office of Management and Budget for review in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545–2191. The collection of information in these final regulations is in § 1.401(k)–3(g)(2) and § 1.401(m)– 3(h)(2). The collection of information relates to the new supplemental notice requirements in the case of a reduction or suspension of safe harbor nonelective VerDate Mar<15>2010 19:51 Nov 14, 2013 Jkt 232001 or matching contributions and the requirement to include additional information in the notice required by §§ 1.401(k)–3(d), 1.401(k)–3(g), and 1.401(m)–3(h) for certain plans that would be permitted to reduce or suspend safe harbor nonelective or matching contributions for a plan year even if the employer had not experienced a business hardship. The likely recordkeepers are businesses and other for-profit institutions, nonprofit institutions, and State and local governments. 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 amendments to regulations under sections 401(k) and 401(m) of the Internal Revenue Code. Section 401(k)(1) provides that a profitsharing, 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 PO 00000 Frm 00049 Fmt 4700 Sfmt 4700 68735 exceeded with respect to HCEs, corrective action must be taken. Section 401(k)(12) provides a designbased 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 designed-based 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, under the design-based safe harbor methods, 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 designbased safe harbor for a CODA that provides for automatic contributions at a specified level and meets certain requirements, including employer contribution and notice requirements. Similar to the design-based safe harbor under section 401(k)(12), section 401(k)(13) provides an employer the choice 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 E:\FR\FM\15NOR1.SGM 15NOR1 emcdonald on DSK67QTVN1PROD with RULES 68736 Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Rules and Regulations 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, 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). 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. 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, final regulations reflecting sections 401(k)(13) and 401(m)(12) were published in the Federal Register (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 same plan year (except to the extent permitted under §§ 1.401(k)– 3 and 1.401(m)–3). Sections 1.401(k)– VerDate Mar<15>2010 19:51 Nov 14, 2013 Jkt 232001 3(g) and 1.401(m)–3(h) set forth the requirements (including a notice and timing requirement) that must be satisfied in order for a plan that satisfies the ADP and ACP tests using safe harbor matching contributions to be amended during the plan year to reduce or suspend such contributions and to satisfy ADP and ACP tests using the current year testing method. Sections 1.401(k)–3(f) and 1.401(m)–3(g) set forth the requirements that must be satisfied (including a notice requirement) in order for a plan to be amended after the first day of the plan year to provide that it will satisfy the ADP and ACP tests for that year using safe harbor nonelective contributions, effective as of the first day of that plan year. 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 §§ 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 §§ 1.401(k)–3 and 1.401(m)–3 through the date of termination and certain other conditions are satisfied (for example, 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 On May 18, 2009, proposed regulations under sections 401(k) and 401(m) were published in the Federal Register (74 FR 23134), which would permit the mid-year reduction or suspension of safe harbor nonelective contributions in certain circumstances. Written comments were received on the proposed regulations, and a public hearing was held September 23, 2009. After consideration of the comments, these final regulations adopt the provisions of the proposed regulations with certain modifications, the most significant of which are highlighted in the Summary of Comments and Explanation of Revisions. Summary of Comments and Explanation of Revisions The proposed regulations would have required, as a condition of the permitted reduction or suspension of safe harbor nonelective contributions, that the employer incur a substantial business hardship (comparable to a substantial business hardship described in section 412(c)). Several commentators requested that the substantial business hardship 1 The definition of substantial business hardship in section 412(d) was relocated to become part of section 412(c) by section 111 of PPA ’06. PO 00000 Frm 00050 Fmt 4700 Sfmt 4700 requirement be eliminated as a condition of the reduction or suspension. The commentators argued that there were insufficient policy reasons for the rules permitting the reduction or suspension of safe harbor nonelective contributions to be stricter than the rules permitting the reduction or suspension of safe harbor matching contributions, that the determination of whether the employer satisfies each of the elements of the section 412(c) definition of substantial business hardship is unnecessarily burdensome, and that employers will not have certainty that they satisfy the substantial business hardship requirements. The final regulations make two changes in response to these concerns about demonstrating compliance with the requirement that the employer incur a substantial business hardship (comparable to a substantial business hardship described in section 412(c)). First, the requirement has been modified by replacing the standard in the proposed regulations that the employer have a substantial business hardship (as described in section 412(c)) with a standard that the employer be operating at an economic loss as described in section 412(c)(2)(A). This new standard eliminates the requirement to determine the health of the industry (as described in section 412(c)(2)(B) and (C)) or whether the reduction or suspension of safe harbor nonelective contributions is needed so that the plan will continue (as described in section 412(c)(2)(D)). Second, the final regulations permit an employer to reduce or suspend safe harbor nonelective contributions without regard to the financial condition of the employer if notice is provided to participants before the beginning of the plan year which discloses the possibility that the contributions might be reduced or suspended mid-year. The notice must also provide that a supplemental notice will be provided to plan participants if a reduction or suspension does occur and that the reduction or suspension will not apply until at least 30 days after the supplemental notice is provided. These regulations do not alter the existing ability of a safe harbor plan to use a contingent notice (as described in § 1.401(k)–3(f)(2)) before the beginning of the plan year where the contingent notice indicates that the plan may be amended during the plan year to include safe harbor nonelective contributions and that, if the plan is amended, a follow-up notice will be provided. In order to achieve uniformity between the rules that apply to a mid- E:\FR\FM\15NOR1.SGM 15NOR1 emcdonald on DSK67QTVN1PROD with RULES Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Rules and Regulations year reduction or suspension of safe harbor matching contributions and the rules that apply to a mid-year reduction or suspension of safe harbor nonelective contributions, the final regulations modify the rules that apply to mid-year amendments reducing or suspending safe harbor matching contributions so that the requirements that apply to a mid-year reduction or suspension of safe harbor nonelective contributions are not stricter than those that apply to a mid-year reduction or suspension of safe harbor matching contributions. Thus, safe harbor matching contributions may be reduced or suspended under a mid-year amendment only if either (i) the employer is operating at an economic loss as described in section 412(c)(2)(A), or (ii) the notice provided to participants before the beginning of the plan year discloses that the contributions might be reduced or suspended mid-year, that participants will receive a supplemental notice if that occurs, and that the reduction or suspension will not apply until at least 30 days after the supplemental notice is provided. Because this requirement is a new limitation on the ability of an employer to amend its plan to reduce or suspend safe harbor matching contributions, the change is first effective for plan years beginning on or after January 1, 2015.2 The final regulations also provide that guidance of general applicability published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b)) may set forth additional situations in which a plan that includes provisions satisfying the requirements of § 1.401(k)–3 will not fail to satisfy the requirements of section 401(k) for a plan year even if the plan is amended during the plan year to implement a mid-year change to those provisions. This will provide the IRS with greater flexibility to develop rules to address special circumstances under which a mid-year change to a section 401(k) safe harbor plan is appropriate, such as an amendment to the plan in connection with a mid-year corporate transaction. This flexibility also extends to mid-year changes to a safe harbor plan under section 401(m) of the Code. Under the proposed regulations, the reduction or suspension of safe harbor nonelective or matching contributions could not be effective ‘‘earlier than the later of 30 days after eligible employees are provided the supplemental notice 2 The preamble to the proposed regulations indicated that the IRS and Treasury were considering adding a requirement that employers provide advance notice regarding the possibility of reduced or suspended safe harbor contributions. VerDate Mar<15>2010 19:51 Nov 14, 2013 Jkt 232001 . . . and the date the amendment is adopted.’’ The final regulations clarify the intention that the reduction or suspension cannot be effective earlier than the later of the date the amendment is adopted or 30 days after eligible employees are provided the supplemental notice. Thus, the minimum 30-day waiting period applies solely with respect to the date the supplemental notice is provided and not the date the amendment is adopted. The preamble to the proposed regulations stated that 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 § 1.401(a)(17)–1(b)(3)(iii)(A). Some commentators asked for clarification as to how these rules apply. Such an explanation of the application of the rules of section 401(a)(17) is beyond the scope of these section 401(k) and (m) regulations. Some commentators requested that the regulations permitting a mid-year amendment reducing or suspending safe harbor nonelective contributions apply with respect to amendments adopted before the proposed regulations were published in the Federal Register. Because the regulations in effect before the proposed regulations were published clearly prohibited such a plan amendment, any employer that adopted such a plan amendment violated the rules applicable under section 401(k) and, if applicable, section 401(m). The Employee Plans Compliance Resolution System (EPCRS) provides a method to correct such a violation. See Appendix A.05(2)(d)(iii) of Rev. Proc. 2013–12 (2013–4 IRB 313, 367), see § 601.601(d)(2). Applicability Dates These regulations generally apply to amendments adopted after May 18, 2009, the effective date previously provided in the proposed regulations. The amendments to the requirements for permitted mid-year reductions or suspensions of safe harbor matching contributions apply for plan years beginning on or after January 1, 2015. Special Analyses It has been determined that these final regulations are not a significant regulatory action as defined in Executive Order 12866. Therefore, a regulatory assessment is not required. It has also been determined that 5 U.S.C. 533(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply PO 00000 Frm 00051 Fmt 4700 Sfmt 4700 68737 to these regulations. It is hereby certified that the collection of information in these final regulations will not have a significant economic impact on a substantial number of small entities. This certification is based upon the fact that small employers that take advantage of the provisions in these regulations will likely see a modest reduction in the cost of providing pensions to their employees. 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, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel of Advocacy of the Small Business Administration for comment on its impact on small business. Drafting Information The principal authors of these regulations are William D. Gibbs and Pamela R. Kinard, 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. Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1 is amended as follows: ■ PART 1—INCOME TAXES Paragraph 1. The authority citation for part 1 is amended by revising the sectional authority for § 1.401(k)-3 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 § 1.401(k)– 3(g), (g)(1) and (g)(2) to read as follows: ■ § 1.401(k)–0. * * § 1.401(k)–3 Table of contents. * * * 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 the second sentence in paragraph (e)(1). E:\FR\FM\15NOR1.SGM 15NOR1 68738 Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Rules and Regulations 2. Revising paragraphs (e)(4)(i) and (e)(4)(ii). ■ 3. Revising paragraph (g). The revisions read as follows: ■ § 1.401(k)–3 Safe harbor requirements. emcdonald on DSK67QTVN1PROD with RULES * * * * * (e) * * * (1) * * * In addition, except as provided in paragraph (g) of this section or in guidance of general applicability published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter), a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of § 1.401(k)– 1(b) if it is amended to change such provisions for that plan year. * * * * * * * * (4) * * * (i) The plan would satisfy the requirements of paragraph (g) of this section, treating the termination of the plan as a reduction or suspension of safe harbor contributions, other than the requirements of paragraph (g)(1)(i)(A) or (g)(1)(ii)(A) of this section (relating to the employer’s financial condition and information included in the initial notice for the plan year) and paragraph (g)(1)(i)(D) or (g)(1)(ii)(D) of this section (requiring that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections); or (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) In the case of plan years beginning on or after January 1, 2015, the employer either— (1) Is operating at an economic loss as described in section 412(c)(2)(A) for the plan year; or (2) Includes in the notice described in paragraph (d) of this section a statement that the plan may be amended during VerDate Mar<15>2010 19:51 Nov 14, 2013 Jkt 232001 the plan year to reduce or suspend safe harbor matching contributions and that the reduction or suspension will not apply until at least 30 days after all eligible employees are provided notice of the reduction or suspension; (B) All eligible employees are provided a supplemental notice that satisfies the requirements of paragraph (g)(2) of this section; (C) The reduction or suspension of safe harbor matching contributions is effective no earlier than the later of the date the amendment is adopted or 30 days after eligible employees are provided the supplemental notice described in paragraph (g)(2) of this section; (D) 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; (E) 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 § 1.401(k)–2(a)(2)(ii); and (F) 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. For amendments adopted after May 18, 2009, 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 either— (1) Is operating at an economic loss, as described in section 412(c)(2)(A) for the plan year; or (2) Includes in the notice described in paragraph (d) of this section a statement that the plan may be amended during the plan year to reduce or suspend safe harbor nonelective contributions and that the reduction or suspension will not apply until at least 30 days after all eligible employees are provided notice of the reduction or suspension; (B) All eligible employees are provided a supplemental notice that satisfies the requirements of paragraph (g)(2) of this section; (C) The reduction or suspension of safe harbor nonelective contributions is PO 00000 Frm 00052 Fmt 4700 Sfmt 4700 effective no earlier than the later of the date the amendment is adopted or 30 days after eligible employees are provided the supplemental notice described in paragraph (g)(2) of this section; (D) 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; (E) 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 § 1.401(k)–2(a)(2)(ii); and (F) 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 that 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 § 1.401(m)– 3(h), (h)(1) and (h)(2), and adding entries for § 1.401(m)–3(h)(1)(i) and (h)(1)(ii), to read as follows: § 1.401(m)–0 * * * § 1.401(m)–3 Table of contents. * * 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 the second sentence in paragraph (f)(1). ■ 2. Revising paragraphs (f)(4)(i) and (f)(4)(ii). ■ 3. Revising paragraph (h). The revisions read as follows: § 1.401(m)–3 * E:\FR\FM\15NOR1.SGM * * 15NOR1 Safe harbor requirements. * * emcdonald on DSK67QTVN1PROD with RULES Federal Register / Vol. 78, No. 221 / Friday, November 15, 2013 / Rules and Regulations (f) * * * (1) * * * In addition, except as provided in paragraph (h) of this section or in guidance of general applicability published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter), a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of § 1.401(m)– 1(b) if it is amended to change such provisions for that plan year. * * * * * * * * (4) * * * (i) The plan would satisfy the requirements of paragraph (h) of this section, treating the termination of the plan as a reduction or suspension of safe harbor contributions, other than the requirements of paragraph (h)(1)(i)(A) or (h)(1)(ii)(A) of this section (relating to the employer’s financial condition and information included in the initial notice for the plan year) and paragraph (h)(1)(i)(D) or (h)(1)(ii)(D) of this section (requiring that employees have a reasonable opportunity to change their cash or deferred elections and, if applicable, employee contribution elections); or (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 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) In the case of plan years beginning on or after January 1, 2015, the employer either— (1) Is operating at an economic loss as described in section 412(c)(2)(A) for the plan year; or (2) Includes in the notice described in paragraph (e) of this section, a statement that the plan may be amended during the plan year to reduce or suspend safe harbor matching contributions and that the reduction or suspension will not apply until at least 30 days after all eligible employees are provided notice of the reduction or suspension; (B) All eligible employees are provided a supplemental notice that VerDate Mar<15>2010 19:51 Nov 14, 2013 Jkt 232001 satisfies the requirements of paragraph (h)(2) of this section; (C) The reduction or suspension of safe harbor matching contributions is effective no earlier than the later of the date the amendment is adopted or 30 days after eligible employees are provided the supplemental notice described in paragraph (h)(2) of this section; (D) 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; (E) 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 § 1.401(m)–2(a)(2)(ii); and (F) 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. For plan amendments adopted after May 18, 2009, 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 either— (1) Is operating at an economic loss as described in section 412(c)(2)(A) for the plan year; or (2) Includes in the notice described in paragraph (e) of this section a statement that the plan may be amended during the plan year to reduce or suspend safe harbor nonelective contributions and that the reduction or suspension will not apply until at least 30 days after all eligible employees are provided notice of the reduction or suspension; (B) All eligible employees are provided a supplemental notice that satisfies the requirements of paragraph (h)(2) of this section; (C) The reduction or suspension of safe harbor nonelective contributions is effective no earlier than the later of the date the amendment is adopted or 30 days after eligible employees are provided the supplemental notice described in paragraph (h)(2) of this section; (D) Eligible employees are given a reasonable opportunity (including a PO 00000 Frm 00053 Fmt 4700 Sfmt 4700 68739 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; (E) 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 § 1.401(m)–2(a)(2)(ii); and (F) 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 § 1.401(k)– 3(g)(2). * * * * * Beth Tucker, Deputy Commissioner for Operations Support. Approved: June 17, 2013. Mark J. Mazur, Assistant Secretary of the Treasury (Tax Policy). [FR Doc. 2013–27452 Filed 11–14–13; 8:45 am] BILLING CODE 4830–01–P PENSION BENEFIT GUARANTY CORPORATION 29 CFR Part 4022 Benefits Payable in Terminated SingleEmployer Plans; Interest Assumptions for Paying Benefits Pension Benefit Guaranty Corporation. ACTION: Final rule. AGENCY: This final rule amends the Pension Benefit Guaranty Corporation’s regulation on Benefits Payable in Terminated Single-Employer Plans to prescribe interest assumptions under the regulation for valuation dates in December 2013. The interest assumptions are used for paying benefits under terminating singleemployer plans covered by the pension insurance system administered by PBGC. SUMMARY: DATES: Effective December 1, 2013. FOR FURTHER INFORMATION CONTACT: Catherine B. Klion (Klion.Catherine@ pbgc.gov), Assistant General Counsel for Regulatory Affairs, Pension Benefit Guaranty Corporation, 1200 K Street NW., Washington, DC 20005, 202–326– E:\FR\FM\15NOR1.SGM 15NOR1

Agencies

[Federal Register Volume 78, Number 221 (Friday, November 15, 2013)]
[Rules and Regulations]
[Pages 68735-68739]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-27452]



[[Page 68735]]

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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9641]
RIN 1545-BI64


Reduction or Suspension of Safe Harbor Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final Regulations.

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SUMMARY: This document contains amendments to regulations relating to 
certain cash or deferred arrangements under section 401(k) and matching 
contributions and employee contributions under section 401(m). These 
regulations provide guidance on permitted mid-year reductions or 
suspensions of safe harbor nonelective contributions in certain 
circumstances for amendments adopted after May 18, 2009. These 
regulations also revise the requirements for permitted mid-year 
reductions or suspensions of safe harbor matching contributions for 
plan years beginning on or after January 1, 2015. The regulations 
affect administrators of, employers maintaining, participants in, and 
beneficiaries of certain defined contribution plans that satisfy the 
nondiscrimination tests of section 401(k) and section 401(m) using one 
of the design-based safe harbors.

DATES: Effective Date: These regulations are effective on November 15, 
2013.
    Applicability Date: These regulations generally apply to amendments 
adopted after May 18, 2009. The amendments to the requirements for 
permitted mid-year reductions or suspensions of safe harbor matching 
contributions apply for plan years beginning on or after January 1, 
2015.

FOR FURTHER INFORMATION CONTACT: William D. Gibbs at (202) 622-6060 
(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)) under control number 1545-2191. The collection of 
information in these final regulations is in Sec.  1.401(k)-3(g)(2) and 
Sec.  1.401(m)-3(h)(2). The collection of information relates to the 
new supplemental notice requirements in the case of a reduction or 
suspension of safe harbor nonelective or matching contributions and the 
requirement to include additional information in the notice required by 
Sec. Sec.  1.401(k)-3(d), 1.401(k)-3(g), and 1.401(m)-3(h) for certain 
plans that would be permitted to reduce or suspend safe harbor 
nonelective or matching contributions for a plan year even if the 
employer had not experienced a business hardship. The likely 
recordkeepers are businesses and other for-profit institutions, 
nonprofit institutions, and State and local governments.
    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 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 designed-based 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, under the design-
based safe harbor methods, 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 
requirements, including employer contribution and notice requirements. 
Similar to the design-based safe harbor under section 401(k)(12), 
section 401(k)(13) provides an employer the choice 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

[[Page 68736]]

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, 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).
    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.
    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, final regulations 
reflecting sections 401(k)(13) and 401(m)(12) were published in the 
Federal Register (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 same plan year 
(except to the extent permitted under Sec. Sec.  1.401(k)-3 and 
1.401(m)-3). Sections 1.401(k)-3(g) and 1.401(m)-3(h) set forth the 
requirements (including a notice and timing requirement) that must be 
satisfied in order for a plan that satisfies the ADP and ACP tests 
using safe harbor matching contributions to be amended during the plan 
year to reduce or suspend such contributions and to satisfy ADP and ACP 
tests using the current year testing method. Sections 1.401(k)-3(f) and 
1.401(m)-3(g) set forth the requirements that must be satisfied 
(including a notice requirement) in order for a plan to be amended 
after the first day of the plan year to provide that it will satisfy 
the ADP and ACP tests for that year using safe harbor nonelective 
contributions, effective as of the first day of that plan year.
    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 certain other conditions 
are satisfied (for example, 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\
---------------------------------------------------------------------------

    \1\ The definition of substantial business hardship in section 
412(d) was relocated to become part of section 412(c) by section 111 
of PPA '06.
---------------------------------------------------------------------------

    On May 18, 2009, proposed regulations under sections 401(k) and 
401(m) were published in the Federal Register (74 FR 23134), which 
would permit the mid-year reduction or suspension of safe harbor 
nonelective contributions in certain circumstances. Written comments 
were received on the proposed regulations, and a public hearing was 
held September 23, 2009. After consideration of the comments, these 
final regulations adopt the provisions of the proposed regulations with 
certain modifications, the most significant of which are highlighted in 
the Summary of Comments and Explanation of Revisions.

Summary of Comments and Explanation of Revisions

    The proposed regulations would have required, as a condition of the 
permitted reduction or suspension of safe harbor nonelective 
contributions, that the employer incur a substantial business hardship 
(comparable to a substantial business hardship described in section 
412(c)). Several commentators requested that the substantial business 
hardship requirement be eliminated as a condition of the reduction or 
suspension. The commentators argued that there were insufficient policy 
reasons for the rules permitting the reduction or suspension of safe 
harbor nonelective contributions to be stricter than the rules 
permitting the reduction or suspension of safe harbor matching 
contributions, that the determination of whether the employer satisfies 
each of the elements of the section 412(c) definition of substantial 
business hardship is unnecessarily burdensome, and that employers will 
not have certainty that they satisfy the substantial business hardship 
requirements.
    The final regulations make two changes in response to these 
concerns about demonstrating compliance with the requirement that the 
employer incur a substantial business hardship (comparable to a 
substantial business hardship described in section 412(c)). First, the 
requirement has been modified by replacing the standard in the proposed 
regulations that the employer have a substantial business hardship (as 
described in section 412(c)) with a standard that the employer be 
operating at an economic loss as described in section 412(c)(2)(A). 
This new standard eliminates the requirement to determine the health of 
the industry (as described in section 412(c)(2)(B) and (C)) or whether 
the reduction or suspension of safe harbor nonelective contributions is 
needed so that the plan will continue (as described in section 
412(c)(2)(D)). Second, the final regulations permit an employer to 
reduce or suspend safe harbor nonelective contributions without regard 
to the financial condition of the employer if notice is provided to 
participants before the beginning of the plan year which discloses the 
possibility that the contributions might be reduced or suspended mid-
year. The notice must also provide that a supplemental notice will be 
provided to plan participants if a reduction or suspension does occur 
and that the reduction or suspension will not apply until at least 30 
days after the supplemental notice is provided. These regulations do 
not alter the existing ability of a safe harbor plan to use a 
contingent notice (as described in Sec.  1.401(k)-3(f)(2)) before the 
beginning of the plan year where the contingent notice indicates that 
the plan may be amended during the plan year to include safe harbor 
nonelective contributions and that, if the plan is amended, a follow-up 
notice will be provided.
    In order to achieve uniformity between the rules that apply to a 
mid-

[[Page 68737]]

year reduction or suspension of safe harbor matching contributions and 
the rules that apply to a mid-year reduction or suspension of safe 
harbor nonelective contributions, the final regulations modify the 
rules that apply to mid-year amendments reducing or suspending safe 
harbor matching contributions so that the requirements that apply to a 
mid-year reduction or suspension of safe harbor nonelective 
contributions are not stricter than those that apply to a mid-year 
reduction or suspension of safe harbor matching contributions. Thus, 
safe harbor matching contributions may be reduced or suspended under a 
mid-year amendment only if either (i) the employer is operating at an 
economic loss as described in section 412(c)(2)(A), or (ii) the notice 
provided to participants before the beginning of the plan year 
discloses that the contributions might be reduced or suspended mid-
year, that participants will receive a supplemental notice if that 
occurs, and that the reduction or suspension will not apply until at 
least 30 days after the supplemental notice is provided. Because this 
requirement is a new limitation on the ability of an employer to amend 
its plan to reduce or suspend safe harbor matching contributions, the 
change is first effective for plan years beginning on or after January 
1, 2015.\2\
---------------------------------------------------------------------------

    \2\ The preamble to the proposed regulations indicated that the 
IRS and Treasury were considering adding a requirement that 
employers provide advance notice regarding the possibility of 
reduced or suspended safe harbor contributions.
---------------------------------------------------------------------------

    The final regulations also provide that guidance of general 
applicability published in the Internal Revenue Bulletin (see Sec.  
601.601(d)(2)(ii)(b)) may set forth additional situations in which a 
plan that includes provisions satisfying the requirements of Sec.  
1.401(k)-3 will not fail to satisfy the requirements of section 401(k) 
for a plan year even if the plan is amended during the plan year to 
implement a mid-year change to those provisions. This will provide the 
IRS with greater flexibility to develop rules to address special 
circumstances under which a mid-year change to a section 401(k) safe 
harbor plan is appropriate, such as an amendment to the plan in 
connection with a mid-year corporate transaction. This flexibility also 
extends to mid-year changes to a safe harbor plan under section 401(m) 
of the Code.
    Under the proposed regulations, the reduction or suspension of safe 
harbor nonelective or matching contributions could not be effective 
``earlier than the later of 30 days after eligible employees are 
provided the supplemental notice . . . and the date the amendment is 
adopted.'' The final regulations clarify the intention that the 
reduction or suspension cannot be effective earlier than the later of 
the date the amendment is adopted or 30 days after eligible employees 
are provided the supplemental notice. Thus, the minimum 30-day waiting 
period applies solely with respect to the date the supplemental notice 
is provided and not the date the amendment is adopted.
    The preamble to the proposed regulations stated that 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). Some commentators asked for clarification 
as to how these rules apply. Such an explanation of the application of 
the rules of section 401(a)(17) is beyond the scope of these section 
401(k) and (m) regulations.
    Some commentators requested that the regulations permitting a mid-
year amendment reducing or suspending safe harbor nonelective 
contributions apply with respect to amendments adopted before the 
proposed regulations were published in the Federal Register. Because 
the regulations in effect before the proposed regulations were 
published clearly prohibited such a plan amendment, any employer that 
adopted such a plan amendment violated the rules applicable under 
section 401(k) and, if applicable, section 401(m). The Employee Plans 
Compliance Resolution System (EPCRS) provides a method to correct such 
a violation. See Appendix A.05(2)(d)(iii) of Rev. Proc. 2013-12 (2013-4 
IRB 313, 367), see Sec.  601.601(d)(2).

Applicability Dates

    These regulations generally apply to amendments adopted after May 
18, 2009, the effective date previously provided in the proposed 
regulations. The amendments to the requirements for permitted mid-year 
reductions or suspensions of safe harbor matching contributions apply 
for plan years beginning on or after January 1, 2015.

Special Analyses

    It has been determined that these final regulations are not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also 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 final regulations 
will not have a significant economic impact on a substantial number of 
small entities. This certification is based upon the fact that small 
employers that take advantage of the provisions in these regulations 
will likely see a modest reduction in the cost of providing pensions to 
their employees. 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, the notice of proposed 
rulemaking preceding these regulations was submitted to the Chief 
Counsel of Advocacy of the Small Business Administration for comment on 
its impact on small business.

Drafting Information

    The principal authors of these regulations are William D. Gibbs and 
Pamela R. Kinard, 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.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by revising 
the sectional authority for Sec.  1.401(k)-3 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).


0
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.
* * * * *

0
Par. 3. Section 1.401(k)-3 is amended by:
0
1. Revising the second sentence in paragraph (e)(1).

[[Page 68738]]

0
2. Revising paragraphs (e)(4)(i) and (e)(4)(ii).
0
3. Revising paragraph (g).
    The revisions read as follows:


Sec.  1.401(k)-3  Safe harbor requirements.

* * * * *
    (e) * * * (1) * * * In addition, except as provided in paragraph 
(g) of this section or in guidance of general applicability published 
in the Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of 
this chapter), a plan which includes provisions that satisfy the rules 
of this section will not satisfy the requirements of Sec.  1.401(k)-
1(b) if it is amended to change such provisions for that plan year. * * 
*
* * * * *
    (4) * * *
    (i) The plan would satisfy the requirements of paragraph (g) of 
this section, treating the termination of the plan as a reduction or 
suspension of safe harbor contributions, other than the requirements of 
paragraph (g)(1)(i)(A) or (g)(1)(ii)(A) of this section (relating to 
the employer's financial condition and information included in the 
initial notice for the plan year) and paragraph (g)(1)(i)(D) or 
(g)(1)(ii)(D) of this section (requiring that employees have a 
reasonable opportunity to change their cash or deferred elections and, 
if applicable, employee contribution elections); or
    (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) In the case of plan years beginning on or after January 1, 
2015, the employer either--
    (1) Is operating at an economic loss as described in section 
412(c)(2)(A) for the plan year; or
    (2) Includes in the notice described in paragraph (d) of this 
section a statement that the plan may be amended during the plan year 
to reduce or suspend safe harbor matching contributions and that the 
reduction or suspension will not apply until at least 30 days after all 
eligible employees are provided notice of the reduction or suspension;
    (B) All eligible employees are provided a supplemental notice that 
satisfies the requirements of paragraph (g)(2) of this section;
    (C) The reduction or suspension of safe harbor matching 
contributions is effective no earlier than the later of the date the 
amendment is adopted or 30 days after eligible employees are provided 
the supplemental notice described in paragraph (g)(2) of this section;
    (D) 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;
    (E) 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
    (F) 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. For amendments adopted after May 
18, 2009, 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 either--
    (1) Is operating at an economic loss, as described in section 
412(c)(2)(A) for the plan year; or
    (2) Includes in the notice described in paragraph (d) of this 
section a statement that the plan may be amended during the plan year 
to reduce or suspend safe harbor nonelective contributions and that the 
reduction or suspension will not apply until at least 30 days after all 
eligible employees are provided notice of the reduction or suspension;
    (B) All eligible employees are provided a supplemental notice that 
satisfies the requirements of paragraph (g)(2) of this section;
    (C) The reduction or suspension of safe harbor nonelective 
contributions is effective no earlier than the later of the date the 
amendment is adopted or 30 days after eligible employees are provided 
the supplemental notice described in paragraph (g)(2) of this section;
    (D) 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;
    (E) 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
    (F) 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 that 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.
* * * * *

0
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), and adding entries for Sec.  
1.401(m)-3(h)(1)(i) and (h)(1)(ii), 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.
* * * * *

0
Par. 5. Section 1.401(m)-3 is amended by:
0
1. Revising the second sentence in paragraph (f)(1).
0
2. Revising paragraphs (f)(4)(i) and (f)(4)(ii).
0
3. Revising paragraph (h).
    The revisions read as follows:


Sec.  1.401(m)-3  Safe harbor requirements.

* * * * *

[[Page 68739]]

    (f) * * * (1) * * * In addition, except as provided in paragraph 
(h) of this section or in guidance of general applicability published 
in the Internal Revenue Bulletin (see Sec.  601.601(d)(2)(ii)(b) of 
this chapter), a plan which includes provisions that satisfy the rules 
of this section will not satisfy the requirements of Sec.  1.401(m)-
1(b) if it is amended to change such provisions for that plan year. * * 
*
* * * * *
    (4) * * *
    (i) The plan would satisfy the requirements of paragraph (h) of 
this section, treating the termination of the plan as a reduction or 
suspension of safe harbor contributions, other than the requirements of 
paragraph (h)(1)(i)(A) or (h)(1)(ii)(A) of this section (relating to 
the employer's financial condition and information included in the 
initial notice for the plan year) and paragraph (h)(1)(i)(D) or 
(h)(1)(ii)(D) of this section (requiring that employees have a 
reasonable opportunity to change their cash or deferred elections and, 
if applicable, employee contribution elections); or
    (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 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) In the case of plan years beginning on or after January 1, 
2015, the employer either--
    (1) Is operating at an economic loss as described in section 
412(c)(2)(A) for the plan year; or
    (2) Includes in the notice described in paragraph (e) of this 
section, a statement that the plan may be amended during the plan year 
to reduce or suspend safe harbor matching contributions and that the 
reduction or suspension will not apply until at least 30 days after all 
eligible employees are provided notice of the reduction or suspension;
    (B) All eligible employees are provided a supplemental notice that 
satisfies the requirements of paragraph (h)(2) of this section;
    (C) The reduction or suspension of safe harbor matching 
contributions is effective no earlier than the later of the date the 
amendment is adopted or 30 days after eligible employees are provided 
the supplemental notice described in paragraph (h)(2) of this section;
    (D) 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;
    (E) 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
    (F) 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. For plan amendments adopted after 
May 18, 2009, 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 either--
    (1) Is operating at an economic loss as described in section 
412(c)(2)(A) for the plan year; or
    (2) Includes in the notice described in paragraph (e) of this 
section a statement that the plan may be amended during the plan year 
to reduce or suspend safe harbor nonelective contributions and that the 
reduction or suspension will not apply until at least 30 days after all 
eligible employees are provided notice of the reduction or suspension;
    (B) All eligible employees are provided a supplemental notice that 
satisfies the requirements of paragraph (h)(2) of this section;
    (C) The reduction or suspension of safe harbor nonelective 
contributions is effective no earlier than the later of the date the 
amendment is adopted or 30 days after eligible employees are provided 
the supplemental notice described in paragraph (h)(2) of this section;
    (D) 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;
    (E) 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
    (F) 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).
* * * * *

Beth Tucker,
Deputy Commissioner for Operations Support.
    Approved: June 17, 2013.

Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2013-27452 Filed 11-14-13; 8:45 am]
BILLING CODE 4830-01-P