IRS Relaxes Safe Harbor Rules

Posted May 28, 2009

The Internal Revenue Service issued regulations on May 18, 2009, relaxing the 401(k) and 403(b) safe harbor rules.

Background

A safe harbor plan is exempt from the typical discrimination testing related to 401(k) salary deferrals and employer matching contributions (ADP/ACP) provided the employer commits to making either a matching contribution for those employees contributing to the plan or, a 3% contribution to all eligible employees whether or not they defer. Until yesterday, if an employer elected to make the 3% contribution prior to the start of the plan year the employer could not reduce or eliminate the 3% contribution during the year. The commitment could only be eliminated by termination of the plan.

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