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Some safe harbor plans want to reduce or eliminate only those contributions given to HCEs, leaving the contributions to NHCEs intact. This general rule is discussed further below. Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC. was This field is for validation purposes and should be left unchanged. We recommend that plan sponsors speak with tax professional and/or legal counsel. By reducing that formula, an employer will reduce the rate of future benefit accruals, affecting the benefits payable to participants. Plans that suspend safe harbor contributions will be subject to average deferral percentage and average contribution percentage nondiscrimination testing for the entire plan year in which the contributions are suspended. A plan that reduces or suspends its Safe Harbor contributions becomes subject to top-heavy testing and therefore may be required to make a top-heavy contribution that could potentially be more expensive than the suspended/reduced safe harbor contributions. Non-Safe Harbor 401(k)s generally do not require companies to provide advance notice when freezing matching contributions. Reducing or Suspending Contributions Made Only to HCEs. make contributions for any amounts promised prior to the effective date of the amendment. email. In response to the economic crisis related to the COVID-19 pandemic, the IRS, in Notice 2020-52 (the Notice), has expanded the ability of employers to reduce or suspend the promised employer matching or other contributions to a safe harbor 401(k) plan.Normally, there are substantial restrictions that limit an employer’s ability to adopt such an amendment in the middle of the … Sorry, we are unable to process your request. Please try after sometime. Our people are trusted to make the right decisions; empowered to achieve peak performance and guided by our higher purpose. Not satisfying all of the Safe Harbor rules and regulations can bring additional financial headaches. If you are a registered user, but have forgotten your LordAbbett.com password, please enter your email address. Safe harbors also include limits on mid-year changes and a requirement to provide notice to plan participants explaining the safe harbor feature. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation. If you have additional questions, please contact your Lord Abbett representative at 888-522-2388. In order for a plan to be a basic safe harbor plan under sections 401 (k) (12) or 401 (m) (11) of the Code or a qualified automatic contribution safe … Ordinarily, an employer is permitted to amend a retirement plan to reduce or suspend safe harbor contributions midyear only if: Note that the rules do not permit a plan sponsor that suspends a safe harbor matching contribution mid-year to implement retroactively a non-elective safe harbor contribution for the same year. Click here to access Announcements, Press Releases, and Lord Abbett media contact information. Employee Benefits and Executive Compensation. Setting Every Community Up for Retirement (SECURE) Act, The Top 5 Wage & Hour Class/Collective Action Claims that Hospitality Employers Face (And How to Avoid Them), Physical Ability Tests: How Employers Can Minimize Their Risks, Proposed Statute Prohibiting Employment of Unauthorized Aliens, With Permanent Revocation of Business License For Second Violation. There was a problem contacting the server. It’s easy to see why. i. The safe harbor 401(k) plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans. Please enable JavaScript to use lordabbett.com. An employer is generally able to suspend employer contributions to 401(k) plans unless the Plan mandates otherwise. A. Investors should carefully consider the investment objectives, risks, charges and expenses of the Lord Abbett Funds. As a consequence of the limited consistent case precedent in this area, hospitality employers defending against these claims face difficulty in accurately predicting their legal outcome. Resend the verification It is not intended for, and should not be used with Small Plan Sponsors, Plan Participants or the Public. In addition, under the mid-year termination rules, it’s possible to preserve safe harbor status in the year of termination under limited circumstances. sent to . Any information provided is for informational purposes only. IRS Notice 2020-52 provides welcome relief to plan sponsors considering suspending safe harbor matching contributions or safe harbor nonelective contributions (or who already suspended safe harbor contributions during 2020) in response to the coronavirus (COVID-19) pandemic. First, retaining safe harbor status is dependent on the reason for the plan termination. The Equal Employment Opportunity Commission’s (EEOC) focus on challenging pre-employment testing highlights the importance of carefully validating such tests before implementing them and reexamining existing pre-employment tests to ensure they will withstand legal scrutiny. clientservices@lordabbett.com. Once the safe harbor matching contribution is discontinued for the year, the plan sponsor may not reinstate the safe harbor match contribution for the current plan year. If an employer is operating at an “economic loss,” the plan sponsor can reduce or suspend safe harbor contributions. These contributions may be employer matching contributions, limited to employees who defer, or employer contributions made on behalf of all eligible employees, regardless of whether they make elective deferrals. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances. Not FDIC-Insured. The following summarizes steps that a plan sponsor must take to reduce or suspend matching or nonelective contributions to its safe harbor plan during the plan year without jeopardizing the plan’s tax-qualified status. The big debate around active vs. passive investment management continues to swirl. This consequence makes sense because participants might reduce their elective deferral amounts when they receive the required notice informing them that the safe harbor match was suspended. The employer is operating at an economic loss; or b. IRS Notice 2020-52 permits employers to suspend or reduce safe harbor contributions (matching or non-elective) after March 13, 2020 for the balance of the year, regardless of whether the employer is operating an economic loss or its annual Safe Harbor notice did not include a statement that the employer has the right to reduce or suspend the Safe Harbor contribution … Safe harbor 401 (k) plan sponsors are permitted to suspend safe harbor contributions mid-year if (1) the company is operating at an economic loss for the plan year, or (2) the mandatory safe harbor notice distributed prior to the beginning of the plan year included a statement that safe harbor contributions … What else do plan sponsors need to know about reducing or suspending Safe Harbor contributions? Time for a Fresh Look at Emerging-Market Bonds, Four Factors to Consider in the Brexit Exit, IRS Updates Life Expectancy Tables that Determine Required Minimum Distributions, Floating Rate Senior Loan Fund (Global Funds II). Subscribe and order forms, fact sheets, presentations, and other documents that can help advisers grow their business. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances. * This is exclusively for use by Analysts, Institutional Investors and their Consultants, Registered Investment Advisors, Broker-Dealers, and Sponsors of Plans with a minimum of 100 participants. If you're still having trouble verifying your email address, feel free to contact us The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. This page will be refreshed after 3 seconds. Lord Abbett Series funds are available to Separate Accounts of some insurance companies. Similar rules regarding the ACP test and safe harbor matching contributions are provided in Regulation 1.401(m)-3(h). Inspired by our mission, we are committed to creating long-term financial security for our clients, empowering our people, advancing our communities, and ensuring a vibrant future for our planet. A.11 If an employer sponsors a safe harbor 401(k) plan, there are restrictions on suspending or reducing employer contributions. Factors taken into account to determine if an employer has suffered a substantial business hardship include whether: An employer that does not initiate a plan termination on account of a substantial business hardship must follow the following steps to properly terminate a safe harbor 401(k) plan: What is the rule in the SECURE Act for suspending or reducing Safe Harbor contributions? Safe Harbor 401(k) Plan. Generally, safe harbor contributions must be in effect for the entire plan year. A qualified retirement plan with a safe harbor plan design can be deemed to satisfy certain nondiscrimination testing requirements and avoid nondiscrimination testing by making uniform prescribed matching or non-elective contributions to plan participant accounts. 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. Your password must be a minimum of characters. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. We cannot become your lawyers or represent you in any way unless (1) we know that doing so would not create a conflict of interest with any of the clients we represent, and (2) satisfactory arrangements have been made with us for representation. The employer is operating at an economic loss; There is substantial unemployment or underemployment in the trade or business and in the industry concerned; and. Yes, an employer may reduce or suspend safe harbor contributions when one of these conditions is met: The employer is operating at an economic loss. The governance of Lord Abbett is diverse in its leadership and thoughtful in its approach in order to enhance our focus and agility, optimize the impact of our people, and prepare the firm for the challenges of the future. In our view, we will need to wait for the IRS to issue guidance. The current year testing method must be used, and if the plan fails nondiscrimination testing, the plan sponsor is required to make qualified non-elective contributions to all non-highly compensated employees or remove excess contributions from the accounts of highly compensated employees to the extent required to pass the tests. However, the employer, in turn for a testing pass, is required to make a mandatory 100% immediate vested contribution (matching or non-elective) to each plan participant. Employer must provide a 30-day notice to participants informing them of its intension to terminate the plan; Fund the safe harbor contribution through the termination date; Run the ADP and ACP tests using current year testing method. That provision would allow the plan sponsor to later choose to provide a matching contribution without the need to make another amendment to the plan document this year and would give the employer until the 2020 filing extension deadline of the employer’s 2020 tax return (September 15, 2021, for calendar year partnerships and S corporations; October 15, 2021, for calendar year corporations) to make a final decision as to whether to make the discretionary matching contribution and the amount of the contribution. For U.S. residents only. To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter. The plan becomes subject to nondiscrimination testing (ADP, ACP, and top-heavy) for the. Read the prospectus carefully before you invest or send money. The financial havoc caused by the coronavirus is sparking an important question: Can a plan sponsor suspend or reduce 401(k) safe harbor contributions for the current plan year? Earnings accrue on a tax-deferred basis. © 2021, Ogletree, Deakins, Nash, Smoak & Stewart, P.C. Suspending or Reducing Employer Contributions to Safe-Harbor Plans . Check your SPAM mailbox and make sure that welcome@lordabbett.com is allowed to send you mail. Check the background of this firm on FINRA’s BrokerCheck. The final 401(k) and 401(m) regulations issued in 2004 had contained procedures for suspending safe harbor matching contributions. Please review the address information below and make any necessary changes. Please understand that merely contacting us does not create an attorney-client relationship. An email has been sent to with instructions on resetting your password. The relief is not applicable to plans that suspend or reduce the safe harbor matching contributions. Lord Abbett experts provide analysis and commentary to help individuals and professionals make better investment decisions. Employers may now suspend or reduce either type of safe harbor contribution (nonelective or matching) if: 1. A safe harbor 401(k) plan is similar to a traditional 401(k) plan; it must provide employer contributions that are fully vested when made. A verification email The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. Internal Revenue Code (IRC) Section 412(c)(2)(A) generally requires that the employer would likely need to show that its expenses exceed income for the year. Plans that depend on safe harbor contributions for an exemption to the top-heavy testing requirement also are required to pass top-heavy testing. The answer is yes. Safe harbor contributions under both matching and nonelective contribution safe harbor plans are permitted to be suspended under the regular rules provided either: 1) the plan sponsor is operating at an economic loss for the plan year or 2) the safe harbor notice for the year included language reserving the right to suspend contributions in the future. A 401(k) is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on an aftertax and/or pretax basis. If the match were later reinstated, it would be too late for the participant to recapture the missed match. Qualified retirement plans are generally subject to nondiscrimination testing to prevent highly compensated employees from receiving a disproportionate share of the benefits and tax-savings associated with qualified retirement plans. Suspending Safe Harbor Contributions. An employer can reduce or suspend their Safe Harbor contribution—either match or non-elective—during a plan year under limited circumstances. provide a supplemental notice to employees at least 30 days before the effective date of the suspension of contributions that explains that contributions will be suspended and that participants may adjust their plan contribution deferral election amounts; give plan participants a reasonable opportunity to change their election amounts prior to the suspension of employer safe harbor contributions; amend the plan document no later than the date that the change will become effective; and. In other words, retaining safe harbor status requires a plan sponsors to terminate the plan as a result of an economic hardship. Your LordAbbett.com password was successully updated. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. Note that the rules do not permit a plan sponsor that suspends a safe harbor matching contribution mid-year to implement retroactively a non-elective safe harbor contribution for the same year. These regulations generally apply to amendments adopted after May 18, 2009, the effective date previously provided in the proposed regulations. Without this language in the safe harbor notice, a plan may only reduce or suspend the safe harbor nonelective or matching contribution … Employer must have included in their safe harbor notice, which is required to be delivered annually to plan participants, a statement that the plan may be amended in the upcoming year to suspend or reduce safe harbor contributions and that the suspension or reduction will not apply until at least 30 days after all eligible employees receive an additional notice of the suspension or reduction. The safe harbor notice that is provided before the start of the plan year includes a statement that the employer may reduce or suspend contributions mid-year. Non-safe harbor matching contributions have more flexibility than their safe harbor counterparts. Resend the verification You have 0 funds on your mutual fund watch list. Safe harbor 401(k) plans that do not provide any additional contributions in a year are exempted from the top-heavy rules of section 416 of the Internal Revenue Code. Unless later guidance provides otherwise, these new rules could allow a plan sponsor that suspends a non-elective safe harbor contribution to choose to reinstate it within that same plan year by the above deadlines. To obtain a prospectus or summary prospectus on any Lord Abbett mutual fund, you can click here or contact your investment professional or Lord Abbett Distributor LLC at 888-522-2388. at 1-888-522-2388. It was not necessary to for the plan sponsor to have a substantial business hardship in order to reduce or suspend safe harbor matching contributions. When the plan sponsor amends the plan to eliminate the safe harbor match, the plan sponsor may also want to consider adding a provision allowing for a discretionary matching contribution. Either: a. 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