Stopping Contributions: Safe Harbor Plans
Given the current volatile economic conditions, some plan sponsors might be considering stopping contributions to safe harbor plans. There are rules that must be followed to stop a safe harbor matching contribution. To date, there are no provisions to stop the 3% non-elective contributions.
Rules for Stopping a Safe Harbor Matching Contribution
- Provide 30-days notice to the plan participants that the match will be stopping. The notice should include the effective that the contributions will stop, and the plan's deferral change provisions that will need to accommodate the stoppage.
- Continue to provide the match through the 30-days notice date.
- Apply current year testing for actual deferral percentage (ADP) and actual contribution percentage (ACP) for the entire year.
- Amend the plan document to remove the safe harbor provisions (and possibly amend the deferral change provisions).
Safe Harbor Non-Elective Contributions
To date, there are no provisions to stop the 3% non-elective contributions. An alternative to consider would be to amend the plan document to remove the safe harbor provisions for the start of the next plan year. If this alternative is implemented, then the next year's safe harbor notice would not be issued.
Contact us with questions about stopping safe harbor contributions or other issues related to tax qualified defined contribution plans.