IRS Notice 2016-16 (Feb. 16 IRS Bulletin) provides long-awaited guidance clarifying the extent to which a safe harbor 401(k) plan (either a traditional safe harbor plan or a qualified automatic contribution arrangement (“QACA”)) may be amended mid-year (20 PBD, 2/1/16). Prior to this guidance, the IRS presumption had been that a mid-year change to a safe harbor plan was not permitted unless IRS guidance expressly permitted the change – and the list of permissible midyear changes was very short.
Under this new guidance, effective for mid-year changes on or after January 29, 2016, the presumption is reversed so that a mid-year change is permitted unless it is on a list of prohibited mid-year changes in the Notice, provided certain participant notice and election requirements are met. This guidance also applies to 403(b) plans that apply the section 401(m) safe harbor rules pursuant to Code section 403(b)(12). In addition, although this guidance does not expressly apply to an eligible automatic contribution arrangement (“EACA”), it seems that it should because the EACA rules generally follow the QACA rules. However, the IRS has requested comments as to whether additional guidance is necessary to address EACAs, so this is not entirely clear. Please see the attached article for further information.