The August deadline to take advantage of temporary relief provided by the Internal Revenue Service to individuals and sponsors of safe harbor 401(k) defined contribution plans is quickly approaching:
· If you received required minimum distributions during 2020 you have until August 31, 2020 to roll over the payments if you wish to defer paying income tax on those amounts.
· Employers have until August 31, 2020, to adopt amendments to suspend safe harbor employer contributions to their defined contribution 401(k) plans.
2020 Required Minimum Distributions (“RMDs”)
The CARES Act, enacted on March 27, 2020, waived the requirement to make RMDs in 2020 from defined contribution plans, including 401(k) and profit sharing plans, 403(b) plans, governmental deferred compensation plans and IRAs.
By the effective date, many RMDs had already been taken and this legislation allows these distributions to be “rolled back in” without tax or penalty, even if more than 60 days has passed, if the rollover is completed by August 31.
Suspension of Employer Safe Harbor Contributions
A sponsor that adopts an amendment by August 31, 2020, may prospectively reduce or suspend safe harbor contributions for participants in its 401(k) plan. The relief differs for safe harbor nonelective employer contributions and plans that provide for safe harbor matching contributions.
· A 401(k) plan that provides for safe harbor matching contributions may be amended no later than August 31, 2020, to reduce or suspend the safe harbor matching contributions. Participants must be provided a supplemental safe harbor notice at least 30 days before the reduction or suspension becomes effective.
· A 401(k) plan that includes safe harbor nonelective employer contributions may be amended to reduce or suspend the safe harbor nonelective employer contributions no later than August 31, 2020. Participants must be provided a supplemental safe harbor notice by August 31, 2020, but 30 days advance notice is not required.
If a sponsor reduces or suspends safe harbor contributions during a plan year, the 401(k) plan must satisfy the 401(k) nondiscrimination test for the entire year. The plan can be amended to be a safe harbor plan again for the following plan year provided an amendment is adopted before the start of the plan year and the required notice is distributed 30 to 90 days before the start of the plan year.
For more information, please contact Asset Strategy at jdg@assetstrategy.com
