While changes to safe harbor plans should generally be made before the start of the plan year (January 1 for plans at Guideline), you may be able to make mid-year adjustments in some circumstances. However, your ability to make amendments will depend on the type and timing of the change.
Anytime a safe harbor plan requests a mid-year change, it will need to be evaluated to determine if it is permissible under safe harbor rules. If a change does take place, a supplemental safe harbor notice is often required.
Changes to reduce or suspend safe harbor contributions
You can lower or stop your safe harbor employer contribution (match or nonelective) mid-year if certain criteria are met:
Your business is operating at an economic loss; or
The safe harbor notice provided to your employees before the start of the plan year includes a statement that you may reduce or suspend contributions mid-year. Guideline safe harbor notices include this statement automatically.
If you reduce or suspend safe harbor contributions, a 30-day notice must be sent to participants before the change can go into effect. Therefore, you’ll have to continue making safe harbor contributions through the effective date of the change.
It’s important to note that changes to your employer contributions outside of the provision standards will result in a loss of safe harbor status. As a result, your plan will be subject to compliance testing for the entire plan year, including when safe harbor contributions were made.
Before discontinuing safe harbor contributions, you should consider whether your plan is likely to fail any non-discrimination tests that will apply to the plan as a result. If so, you’ll want to weigh the consequences of failing the nondiscrimination tests versus the savings you’ll experience in not making employer contributions to the plan. For example, if your plan is top heavy, the safe harbor contributions are often less expensive than meeting the top heavy contribution requirements for the year.
Once safe harbor status is removed, you generally won’t be able to re-add it until January 1 of the following year.
Changes to increase safe harbor contributions
The IRS allows increases to a Safe Harbor match mid-year as long as the increase applies for at least 3 months and advance notice is provided. However, Guideline does not support mid-year increases to Safe Harbor match plans.
Adjustments to safe harbor contribution type
Safe harbor plans cannot switch between the type of employer contribution that’s being offered. For example, you cannot move from a safe harbor match to a safe harbor nonelective contribution mid-year, and vice versa. This includes moving from a traditional safe harbor plan to a QACA safe harbor plan.
Changes to participant eligibility
Safe harbor plans are not permitted to change eligibility requirements that would reduce the number of employees eligible to receive the safe harbor contribution. However, a change that would result in more participants being eligible is permitted.
Age and service requirement: Because any changes made to either the minimum age to participate in the plan or the length of time an employee must work for the company before they enter the plan would only apply to those who are not already eligible to participate, these can be changed mid-year. For example, if you were to increase the age requirement from 18 to 21, any participant under age 21 would still be allowed to participate in the plan. Only those who have not yet passed an entry date after meeting the eligibility requirements would need to meet the higher age requirement. Since no individual currently eligible to participate in the plan would be losing the ability to participate, this change can be done mid-year even for a safe harbor plan.
Class exclusions: Because class exclusions can cause an individual who is already eligible to lose that eligibility, adding a new class exclusion mid-year is not allowed. However, removing a class exclusion mid-year so that more individuals are eligible to participate is permitted. For example, you could remove the exclusion of leased employees mid-year but you could not add the provision to exclude leased employees mid-year as that would result in employees already allowed to participate from being removed from participation in the plan.
For more information, see the IRS guidance on mid-year changes.
Changes to QACA safe harbor vesting schedule
QACA safe harbor plans can include a vesting schedule on the safe harbor contribution. This vesting schedule cannot be increased mid-year. However, you can reduce or remove the vesting schedule mid-year. For example, you cannot change from a 1-year cliff schedule to a 2-year cliff schedule but you can change from a 2-year cliff schedule to immediate 100% vested.
How to determine if you have a safe harbor plan
To find out whether your plan has safe harbor status, access the Settings page of your administrator dashboard.
If your plan is safe harbor, you should see information regarding your safe harbor contribution formula and status effective date. Otherwise, you can learn about how to add safe harbor status mid-year here.