By Justin Bonestroo
Executive Vice President
Popular Retirement Plan Design Under Attack
On January 6, 2014, the IRS issued Notice 2014-5 related to discrimination testing for defined benefit plans that is meant to provide relief to certain large companies who have frozen operation of their defined benefit plans. In February, they issued final regulations to define how the relief would work in operation. Unfortunately, they used the proposed regulation as an opportunity to completely surprise the industry with a significant provision that could severely impact existing profit sharing plans.
Without getting too technical, the provision will limit the availability of using individual groups to decide contribution levels within a plan. This will make testing more difficult and will require most plans to be amended to remove provisions included in plan document restatements just completed.
This is a very big deal. The provisions of this regulation will greatly reduce the incentive for business owners to establish and maintain a qualified plan. The good news is that the rule is proposed and not final. The American Retirement Association has created a website to help employers and practitioners sign a petition to the Treasury Department and contact their representatives in Congress to ask that they help stop this regulation. We recommend you visit www.savemyplan.org and let your voice be heard.
Safe Harbor Plan Mid-Year Amendments
For years, safe harbor 401(k) plans have not been allowed to make amendments during a plan year except for in very specific situations. In January 2016, IRS released Notice 2016-16 which greatly expands the instances that a safe harbor plan may be amended mid-year. This is a great victory, particularly for ASPPA who has advocated for this change for years and was instrumental in achieving this change.
Effective immediately, plans may now be amended in the middle of a plan-year rather than having to wait until the first day of the following year. If any amendments change information in the SH notice, a new notice must be provided. A non-safe harbor plan still cannot be amended to become a safe harbor plan mid-year, and a few restrictions do still exist, but they are very specific.
If you are interested in how this may affect your plan or would like more information, please contact your Case Manager or Justin Bonestroo to discuss.