[Federal Register Volume 74, Number 94 (Monday, May 18, 2009)]
[Proposed Rules]
[Pages 23134-23139]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-11481]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-115699-09]
RIN:1545-BI64


Suspension or Reduction of Safe Harbor Nonelective Contributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed amendments to the regulations 
relating to certain cash or deferred arrangements and matching 
contributions under section 401(k) plans and section 403(b) plans. 
These regulations affect administrators of, employers maintaining, 
participants in, and beneficiaries of certain section 401(k) plans and 
section 403(b) plans.

DATES: Written or electronic comments must be received by August 17, 
2009. Outlines of the topics to be discussed at the public hearing 
scheduled for Wednesday, September 23, 2009, at 10 a.m. must be 
received by August 19, 2009.

ADDRESSES: Send submissions to CC:PA:LPD:PR (REG-115699-09), Room 5203, 
Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
115699-09), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC 20224 or sent electronically via the 
Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-
115699-09).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, R. Lisa 
Mojiri-Azad, Dana Barry or William D. Gibbs at (202) 622-6060; 
concerning the submission of comments or to request a public hearing, 
<a href="/cdn-cgi/l/email-protection#0c5e656f646d7e68224d2244797e7f784c657e7f6f6379627f696022787e696d7f226b637a"><span class="__cf_email__" data-cfemail="9ac8f3f9f2fbe8feb4dbb4d2efe8e9eedaf3e8e9f9f5eff4e9fff6b4eee8fffbe9b4fdf5ec">[email protected]</span></a>, (202) 622-7180 (not toll-free 
numbers).

SUPPLEMENTARY INFORMATION:

[[Page 23135]]

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:W:CAR:MP:T:T:SP; 
Washington, DC 20224. Comments on the collection of information should 
be received by July 17, 2009. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information;
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collections of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of service to provide information.
    The collection of information in these proposed regulations is in 
Sec.  1.401(k)-3. The collection relates to the new supplemental notice 
in the case of a reduction or suspension of safe harbor nonelective 
contributions. The likely recordkeepers are businesses or other for-
profit institutions, nonprofit institutions, organizations, and state 
or local governments.
    Estimated total average annual recordkeeping burden: 5,000 hours.
    Estimated average annual burden hours per recordkeeper: 1 hour.
    Estimated number of recordkeepers: 5,000.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains proposed amendments to regulations under 
sections 401(k) and 401(m) of the Internal Revenue Code.
    Section 401(k)(1) provides that a profit-sharing, stock bonus, pre-
ERISA money purchase, or rural cooperative plan will not fail to 
qualify under section 401(a) merely because it contains a qualified 
cash or deferred arrangement. Section 1.401(k)-1(a)(2) defines a cash 
or deferred arrangement (CODA) as an arrangement under which an 
eligible employee may make a cash or deferred election with respect to 
contributions to, or accruals or other benefits under, a plan that is 
intended to satisfy the requirements of section 401(a). Contributions 
that are made pursuant to a cash or deferred election under a qualified 
CODA are commonly referred to as elective contributions.
    In order for a CODA to be a qualified CODA, it must satisfy a 
number of requirements. For example, contributions under the CODA must 
satisfy either the nondiscrimination test set forth in section 
401(k)(3), called the actual deferral percentage (ADP) test, or one of 
the design-based alternatives in section 401(k)(11), 401(k)(12), or 
401(k)(13). Under the ADP test, the average percentage of compensation 
deferred for eligible highly compensated employees (HCEs) is compared 
to the average percentage of compensation deferred for eligible 
nonhighly compensated employees (NHCEs), and if certain deferral 
percentage limits are exceeded with respect to HCEs, corrective action 
must be taken.
    Section 401(k)(12) provides a design-based safe harbor method under 
which a CODA is treated as satisfying the ADP test if the arrangement 
meets certain contribution and notice requirements. A plan satisfies 
this safe harbor method if the employer makes specified qualified 
matching contributions (QMACs) for all eligible NHCEs. The employer can 
make QMACs under a basic matching formula that provides for QMACs on 
behalf of each eligible NHCE equal to 100% of the employee's elective 
contributions that do not exceed 3% of compensation and 50% of the 
employee's elective contributions that exceed 3% but do not exceed 5% 
of compensation. Alternatively, the employer can make QMACs under an 
enhanced matching formula that provides, at each rate of elective 
contributions, for an aggregate amount of QMACs that is at least as 
generous as under the basic matching formula, but only if the rate of 
QMACs under the enhanced matching formula does not increase as the 
employee's rate of elective contributions increases. In lieu of QMACs, 
the plan is permitted to provide qualified nonelective contributions 
(QNECs) equal to 3% of compensation for all eligible NHCEs. In 
addition, notice must be provided to each eligible employee, within a 
reasonable period before the beginning of the plan year, of the 
employee's rights and obligations under the plan.
    Section 401(k)(13), as added by section 902 of the Pension 
Protection Act of 2006, Public Law 109-280 (PPA '06), provides an 
alternative design-based safe harbor for a CODA that provides for 
automatic contributions at a specified level and meets certain employer 
contribution and notice requirements. Similar to the design-based safe 
harbor under section 401(k)(12), section 401(k)(13) provides a choice 
for an employer between satisfying a matching contribution requirement 
or a nonelective contribution requirement. Under the matching 
contribution requirement, the employer can make matching contributions 
under a basic matching formula that provides for matching contributions 
on behalf of each eligible NHCE equal to 100% of the employee's 
elective contributions that do not exceed 1% of compensation and 50% of 
the employee's elective contributions that exceed 1% but do not exceed 
6% of compensation. Alternatively, the employer can make matching 
contributions under an enhanced matching formula that provides, at each 
rate of elective contributions, for an aggregate amount of matching 
contributions that is at least as generous as under the basic matching 
formula at such rate, but only if the rate of matching contributions 
under the enhanced matching formula does not increase as the employee's 
rate of elective contributions increases. In addition, the plan must 
satisfy a notice requirement under section 401(k)(13) that is similar 
to the notice requirement under section 401(k)(12).
    Except as discussed elsewhere in this preamble, a plan that uses 
one of these safe harbor methods under section 401(k)(12) or (13) must 
specify, before the beginning of the plan year, whether the safe harbor 
contribution will be the safe harbor nonelective contribution or the 
safe harbor matching contribution and is not permitted to provide that 
ADP testing will be used if the requirements for the safe harbor are 
not satisfied.

[[Page 23136]]

    Section 401(m) sets forth a nondiscrimination requirement that 
applies to a plan providing for matching contributions or employee 
contributions. Such a plan must satisfy either the nondiscrimination 
test set forth in section 401(m)(2), called the actual contribution 
percentage (ACP) test, or one of the design-based alternatives in 
section 401(m)(10), 401(m)(11), or 401(m)(12). The ACP test in section 
401(m)(2) is comparable to the ADP test in section 401(k)(3).
    Under section 401(m)(11), a defined contribution plan is treated as 
satisfying the ACP test with respect to matching contributions if the 
plan satisfies the ADP safe harbor of section 401(k)(12) and certain 
other requirements are satisfied. Similarly, under section 401(m)(12), 
as added by section 902 of PPA '06, a defined contribution plan that 
provides for automatic contributions at a specified level is treated as 
meeting the ACP test with respect to matching contributions if the plan 
satisfies the ADP safe harbor of section 401(k)(13) and certain other 
requirements are satisfied.
    Section 403(b) provides favorable tax treatment for the purchase of 
annuity contracts that satisfy certain requirements. Pursuant to 
sections 403(b)(1)(D) and 403(b)(12)(A)(i), the purchase of an annuity 
contract (other than a purchase by a church) is eligible for this 
favorable tax treatment only if it is part of a plan that meets the 
requirements of section 401(m), as if it were a qualified plan under 
section 401(a).
    Final regulations under sections 401(k) and 401(m) were published 
on December 29, 2004. Sections 1.401(k)-3 and 1.401(m)-3 set forth the 
requirements for a safe harbor plan under sections 401(k)(12) and 
401(m)(11), respectively. On February 24, 2009, these regulations were 
amended to reflect sections 401(k)(13) and 401(m)(12) (74 FR 8200).
    Sections 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1) provide that subject 
to certain exceptions, a safe harbor plan must be adopted before the 
beginning of the plan year and be maintained throughout a full 12-month 
plan year. Accordingly, if, at the beginning of the plan year, a plan 
contains an allocation formula that includes safe harbor matching or 
safe harbor nonelective contributions, then the plan may not be amended 
to revert to ADP or ACP testing for the plan year (except to the extent 
permitted under Sec. Sec.  1.401(k)-3 and 1.401(m)-3).
    Sections 1.401(k)-3(f) and 1.401(m)-3(g) permit a plan that 
provides for the use of the current year ADP or ACP testing method to 
be amended after the first day of the plan year to adopt the safe 
harbor method under Sec.  1.401(k)-3 or Sec.  1.401(m)-3 using safe 
harbor nonelective contributions, effective as of the first day of the 
plan year, if certain requirements are satisfied. In particular, the 
amendment must be adopted no later than 30 days before the last day of 
the plan year, and the plan must satisfy specified contingent and 
follow-up notice requirements. Under Sec. Sec.  1.401(k)-3(f) and 
1.401(m)-3(g), a plan satisfies the contingent notice requirement if 
the notice is provided before the plan year and specifies that the plan 
may be amended during the plan year to include the safe harbor 
nonelective contribution and that, if the plan is amended, a follow-up 
notice will be provided. A plan satisfies the follow-up notice 
requirement if, no later than 30 days before the last day of the plan 
year, each eligible employee is given a notice that states that the 
safe harbor nonelective contributions will be made for the plan year.
    A plan that provides for safe harbor matching contributions will 
not fail to satisfy section 401(k)(3) or section 401(m)(2) for a plan 
year merely because the plan is amended during the plan year to reduce 
or suspend safe harbor matching contributions on future elective 
contributions, as long as the requirements under Sec.  1.401(k)-3(g) or 
Sec.  1.401(m)-3(h) are met. Under these regulations: a notice must be 
provided to all eligible employees regarding the reduction or 
suspension of safe harbor matching contributions; the reduction or 
suspension of safe harbor matching contributions must be effective no 
earlier than the later of 30 days after eligible employees are provided 
the notice and the date the amendment is adopted; eligible employees 
must be given a reasonable opportunity prior to the reduction or 
suspension of safe harbor matching contributions to change their cash 
or deferred elections and, if applicable, their employee contribution 
elections; the plan must be amended to provide that the applicable 
nondiscrimination tests will be satisfied for the entire plan year; and 
the plan must satisfy the requirements of Sec. Sec.  1.401(k)-3 and 
1.401(m)-3 (other than Sec. Sec.  1.401(k)-3(g) and 1.401(m)-3(h)) with 
respect to amounts deferred through the effective date of the 
amendment.
    Sections 1.401(k)-3(e)(4) and 1.401(m)-3(f)(4) provide that, if a 
plan terminates during a plan year, the plan will not fail to satisfy 
the requirements of Sec. Sec.  1.401(k)-3(e)(1) and 1.401(m)-3(f)(1) 
merely because the final plan year is less than 12 months, provided 
that the plan satisfies the requirements of Sec. Sec.  1.401(k)-3 and 
1.401(m)-3 through the date of termination and either (1) the plan 
would have satisfied the requirements applicable to a plan amendment to 
reduce or suspend safe harbor matching contributions (other than the 
requirement that employees have a reasonable opportunity to change 
their cash or deferred elections and, if applicable, employee 
contribution elections) or (2) the termination is in connection with a 
transaction described in section 410(b)(6)(C) or the employer incurs a 
substantial business hardship (comparable to a substantial business 
hardship described in section 412(d) \1\).
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    \1\ The definition of substantial business hardship in section 
412(d) was relocated to become part of section 412(c) by section 111 
of the Pension Protection Act of 2006, Public Law 109-280.
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    Section 416 sets forth the rules for top-heavy plans. Section 
416(g)(4)(H) provides that a top-heavy plan will not include a plan 
which consists solely of a cash or deferred arrangement that meets the 
requirements of section 401(k)(12) or 401(k)(13) and matching 
contributions with respect to which the requirements of section 
401(m)(11) or 401(m)(12) are met.

Explanation of Provisions

    The proposed regulations would amend Sec. Sec.  1.401(k)-3 and 
1.401(m)-3 to permit an employer sponsoring a safe harbor plan 
described in section 401(k)(12) or 401(k)(13) that incurs a substantial 
business hardship (comparable to a substantial business hardship 
described in section 412(c)) to reduce or suspend safe harbor 
nonelective contributions during a plan year. These proposed 
regulations would provide an employer an alternative to the option of 
terminating the employer's safe harbor plan in such a situation.
    The proposed regulations would allow for the reduction or 
suspension of safe harbor nonelective contributions under rules 
generally comparable to the provisions relating to the reduction or 
suspension of safe harbor matching contributions. Under these rules, a 
plan that reduces or suspends safe harbor nonelective contributions 
will not fail to satisfy section 401(k)(3), provided that: (1) All 
eligible employees are provided a supplemental notice of the reduction 
or suspension; (2) the reduction or suspension of safe harbor 
nonelective contributions is effective no earlier than the later of 30 
days after eligible employees are provided the supplemental notice and 
the date the amendment is adopted; (3) eligible employees are given a 
reasonable opportunity (including a reasonable

[[Page 23137]]

period after receipt of the supplemental notice) prior to the reduction 
or suspension of the safe harbor nonelective contributions to change 
their cash or deferred elections and, if applicable, their employee 
contribution elections; (4) the plan is amended to provide that the ADP 
test will be satisfied for the entire plan year in which the reduction 
or suspension occurs, using the current year testing method; and (5) 
the plan satisfies the safe harbor nonelective contribution requirement 
with respect to safe harbor compensation paid through the effective 
date of the amendment. The proposed regulations would also provide that 
the supplemental notice requirement is satisfied if each eligible 
employee is given a notice that explains: (1) The consequences of the 
amendment reducing or suspending future safe harbor nonelective 
contributions; (2) the procedures for changing cash or deferred 
elections and, if applicable, employee contribution elections; and (3) 
the effective date of the amendment.
    The proposed regulations would further provide that these same 
rules that apply to safe harbor plans under Sec.  1.401(k)-3 also apply 
to safe harbor plans under Sec.  1.401(m)-3, except that the plan must 
be amended to provide that the ACP test will be satisfied for the 
entire plan year in which the reduction or suspension occurs using the 
current year testing method.
    Because the reduction or suspension of safe harbor contributions 
can be effective no earlier than the later of 30 days after the notice 
is provided to all eligible employees and the date the amendment is 
adopted, an employer that wants to reduce or suspend safe harbor 
contributions during a year could not implement this change by adopting 
the amendment at the end of the plan year. In addition, a plan that is 
amended during the plan year to reduce or suspend safe harbor 
contributions (whether nonelective contributions or matching 
contributions) must prorate the otherwise applicable compensation limit 
under section 401(a)(17) in accordance with the requirements of Sec.  
1.401(a)(17)-1(b)(3)(iii)(A). Furthermore, a plan that is amended to 
reduce or suspend safe harbor contributions is no longer a plan 
described in section 401(k)(12), 401(k)(13), 401(m)(11), or 401(m)(12) 
for the entire plan year. Accordingly, such a plan is not described in 
section 416(g)(4)(H) and, thus, will be subject to the top-heavy rules 
under section 416.

Proposed Effective Date

    These regulations are proposed to be effective for amendments 
adopted after May 18, 2009. Taxpayers may rely on these proposed 
regulations for guidance pending the issuance of final regulations. If, 
and to the extent, the final regulations are more restrictive than the 
guidance in these proposed regulations, those provisions of the final 
regulations will be applied without retroactive effect.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required. It has been 
determined that 5 U.S.C. 533(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. It is hereby 
certified that the collection of information in these proposed 
regulations will not have a significant economic impact on a 
substantial number of small entities. The proposed regulations impact 
on small businesses is as follows. A pension consultant or attorney 
must read the regulation. He must then communicate this information to 
the small business owner. The small business owner must then decide if 
he wants to reduce nonelective contributions to its safe harbor plan. 
Once this decision is made, the pension consultant or attorney must 
draft the notice to employees and the small business must make sure 
that the employees receive the notice.
    We estimate that the cost to do these tasks is $500-$1000. If the 
small business owner can implement this program by July 1, 2009, he 
will save 1.5% of his payroll for 2009. A small business with an annual 
payroll of $1,000,000 can save $15,000 in 2009. Thus, adopting the 
provisions in these regulation will in almost all cases save the small 
business owner money. Therefore, an analysis under the Regulatory 
Flexibility Act (5 U.S.C. chapter 6) is not required.
    Pursuant to section 7805(f) of the Internal Revenue Code, these 
regulations have been submitted to the Chief Counsel for Advocacy of 
the Small Business Administration for comments on its impact on small 
business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (one signed and eight (8) 
copies) or electronic comments that are submitted timely to the IRS. 
The IRS and Treasury Department specifically request comments on the 
clarity of the proposed rules and how they can be made easier to 
understand.
    The current regulations, in describing the requirement for safe 
harbor plans that a notice be provided before the beginning of the plan 
year, do not address the possibility that safe harbor contributions may 
be reduced or suspended during the year. Since, under these 
regulations, safe harbor nonelective contributions, as well as safe 
harbor matching contributions, can be reduced or suspended during the 
plan year under certain circumstances, the IRS and Treasury are 
considering adding to the minimum content listing in Sec.  1.401(k)-
3(d)(2)(ii), a requirement that the possibility of reduced or suspended 
safe harbor contributions be described in the notice required to be 
provided before the beginning of the plan year (except in the case of a 
contingent notice described in Sec.  1.401(k)-3(f)). If adopted, the 
requirement that the notice describe the possibility of reduced or 
suspended safe harbor contributions would not apply for plan years 
beginning before January 1, 2010. The IRS and Treasury specifically 
request comments on whether the additional content requirement should 
be added to the regulations.
    A public hearing has been scheduled for September 23, 2009, at 10 
a.m. in the IRS Auditorium, Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, visitors must enter at the Constitution Avenue entrance. In 
addition, all visitors must present photo identification to enter the 
building. Because of access restrictions, visitors will not be admitted 
beyond the immediate entrance area more than 30 minutes before the 
hearing starts. For information about having your name placed on the 
building access list to attend the hearing, see the FOR FURTHER 
INFORMATION CONTACT section of this preamble.
    Persons who wish to present oral comments at the hearing must 
submit written or electronic comments and submit an outline of the 
topics to be discussed and the amount of time to be devoted to each 
topic (a signed original and eight (8) copies) by August 19, 2009. A 
period of 10 minutes will be allotted to each person for making 
comments.
    An agenda showing the scheduling of the speakers will be prepared 
after the deadline for receiving outlines has passed. Copies of the 
agenda will be available free of charge at the hearing.

[[Page 23138]]

Drafting Information

    The principal authors of these regulations are Dana Barry, William 
Gibbs, and Lisa Mojiri-Azad, Office of Division Counsel/Associate Chief 
Counsel (Tax Exempt and Government Entities). However, other personnel 
from the IRS and Treasury Department participated in the development of 
these regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended to read 
as follows:

    Authority:  26 U.S.C. 7805 * * *

    Section 1.401(k)-3 is also issued under 26 U.S.C. 401(m)(9).

    Par. 2. Section 1.401(k)-0 is amended by revising the entries for 
Sec.  1.401(k)-3(g), (g)(1) and (g)(2) to read as follows:

Sec.  1.401(k)-0 Table of Contents.
* * * * *
Sec.  1.401(k)-3 Safe harbor requirements.
* * * * *
    (g) Permissible reduction or suspension of safe harbor 
contributions.
    (1) General rule.
    (i) Matching contributions.
    (ii) Nonelective contributions.
    (2) Supplemental notice.
* * * * *

    Par. 3. Section 1.401(k)-3 is amended by:
    1. Revising paragraph (e)(4)(ii).
    2. Revising paragraph (g).
    The revisions read as follows:


Sec.  1.401(k)-3  Safe harbor requirements.

* * * * *
    (e) * * *
    (4) * * *
    (ii) The plan termination is in connection with a transaction 
described in section 410(b)(6)(C) or the employer incurs a substantial 
business hardship comparable to a substantial business hardship 
described in section 412(c).
* * * * *
    (g) Permissible reduction or suspension of safe harbor 
contributions--(1) General rule--(i) Matching contributions. A plan 
that provides for safe harbor matching contributions intended to 
satisfy the requirements of paragraph (c) of this section for a plan 
year will not fail to satisfy the requirements of section 401(k)(3) 
merely because the plan is amended during the plan year to reduce or 
suspend safe harbor matching contributions on future elective 
contributions (and, if applicable, employee contributions) provided 
that--
    (A) All eligible employees are provided the supplemental notice in 
accordance with paragraph (g)(2) of this section;
    (B) The reduction or suspension of safe harbor matching 
contributions is effective no earlier than the later of 30 days after 
eligible employees are provided the supplemental notice described in 
paragraph (g)(2) of this section and the date the amendment is adopted;
    (C) Eligible employees are given a reasonable opportunity 
(including a reasonable period after receipt of the supplemental 
notice) prior to the reduction or suspension of safe harbor matching 
contributions to change their cash or deferred elections and, if 
applicable, their employee contribution elections;
    (D) The plan is amended to provide that the ADP test will be 
satisfied for the entire plan year in which the reduction or suspension 
occurs using the current year testing method described in Sec.  
1.401(k)-2(a)(2)(ii); and
    (E) The plan satisfies the requirements of this section (other than 
this paragraph (g)) with respect to amounts deferred through the 
effective date of the amendment.
    (ii) Nonelective contributions. A plan that provides for safe 
harbor nonelective contributions intended to satisfy the requirements 
of paragraph (b) of this section for the plan year will not fail to 
satisfy the requirements of section 401(k)(3) merely because the plan 
is amended during the plan year to reduce or suspend safe harbor 
nonelective contributions provided that--
    (A) The employer incurs a substantial business hardship (comparable 
to a substantial business hardship described in section 412(c));
    (B) The amendment is adopted after May 18, 2009;
    (C) All eligible employees are provided the supplemental notice in 
accordance with paragraph (g)(2) of this section;
    (D) The reduction or suspension of safe harbor nonelective 
contributions is effective no earlier than the later of 30 days after 
eligible employees are provided the supplemental notice described in 
paragraph (g)(2) of this section and the date the amendment is adopted;
    (E) Eligible employees are given a reasonable opportunity 
(including a reasonable period after receipt of the supplemental 
notice) prior to the reduction or suspension of nonelective 
contributions to change their cash or deferred elections and, if 
applicable, their employee contribution elections;
    (F) The plan is amended to provide that the ADP test will be 
satisfied for the entire plan year in which the reduction or suspension 
occurs using the current year testing method described in Sec.  
1.401(k)-2(a)(2)(ii); and
    (G) The plan satisfies the requirements of this section (other than 
this paragraph (g)) with respect to safe harbor compensation paid 
through the effective date of the amendment.
    (2) Supplemental notice. The supplemental notice requirement of 
this paragraph (g)(2) is satisfied if each eligible employee is given a 
notice (in writing or such other form as prescribed by the 
Commissioner) that explains--
    (i) The consequences of the amendment which reduces or suspends 
future safe harbor contributions;
    (ii) The procedures for changing their cash or deferred elections 
and, if applicable, their employee contribution elections; and
    (iii) The effective date of the amendment.
    Par. 4. Section 1.401(m)-0 is amended by revising the entries for 
Sec.  1.401(m)-3(h), (h)(1) and (h)(2) in their entirety to read as 
follows:

Sec.  1.401(m)-0 Table of Contents.
* * * * *
Sec.  1.401(m)-3 Safe Harbor Requirements.
* * * * *
    (h) Permissible reduction or suspension of safe harbor 
contributions.
    (1) General rule.
    (i) Matching contributions.
    (ii) Nonelective contributions.
    (2) Supplemental notice.
* * * * *
    Par. 5. Section 1.401(m)-3 is amended by:
    1. Revising paragraph (f)(4)(ii).
    2. Revising paragraph (h).
    The revisions read as follows:


Sec.  1.401(m)-3  Safe harbor requirements.

* * * * *
    (f) * * *
    (4) * * *
    (ii) The plan termination is in connection with a transaction 
described in section 410(b)(6)(C) or the employer incurs a substantial 
business hardship, comparable to a substantial business hardship 
described in section 412(c).
* * * * *
    (h) Permissible reduction or suspension of safe harbor 
contributions--(1) General rule--(i) Matching contributions. A plan 
that provides for safe harbor matching

[[Page 23139]]

contributions intended to satisfy the requirements of paragraph (c) of 
this section for a plan year will not fail to satisfy the requirements 
of section 401(m)(2) merely because the plan is amended during the plan 
year to reduce or suspend safe harbor matching contributions on future 
elective deferrals and, if applicable, employee contributions provided 
that--
    (A) All eligible employees are provided the supplemental notice in 
accordance with paragraph (h)(2) of this section;
    (B) The reduction or suspension of safe harbor matching 
contributions is effective no earlier than the later of 30 days after 
eligible employees are provided the supplemental notice described in 
paragraph (h)(2) of this section and the date the amendment is adopted;
    (C) Eligible employees are given a reasonable opportunity 
(including a reasonable period after receipt of the supplemental 
notice) prior to the reduction or suspension of safe harbor matching 
contributions to change their cash or deferred elections and, if 
applicable, their employee contribution elections;
    (D) The plan is amended to provide that the ACP test will be 
satisfied for the entire plan year in which the reduction or suspension 
occurs using the current year testing method described in Sec.  
1.401(m)-2(a)(2)(ii); and
    (E) The plan satisfies the requirements of this section (other than 
this paragraph (h)) with respect to amounts deferred through the 
effective date of the amendment.
    (ii) Nonelective contributions. A plan that provides for safe 
harbor nonelective contributions intended to satisfy the requirements 
of paragraph (b) of this section will not fail to satisfy the 
requirements of section 401(m)(2) for the plan year merely because the 
plan is amended during the plan year to reduce or suspend safe harbor 
nonelective contributions provided that--
    (A) The employer incurs a substantial business hardship (comparable 
to a substantial business hardship described in section 412(c));
    (B) The amendment is adopted after May 18, 2009;
    (C) All eligible employees are provided the supplemental notice in 
accordance with paragraph (h)(2) of this section;
    (D) The reduction or suspension of safe harbor nonelective 
contributions is effective no earlier than the later of 30 days after 
eligible employees are provided the supplemental notice described in 
paragraph (h)(2) of this section and the date the amendment is adopted;
    (E) Eligible employees are given a reasonable opportunity 
(including a reasonable period after receipt of the supplemental 
notice) prior to the reduction or suspension of nonelective 
contributions to change their cash or deferred elections and, if 
applicable, their employee contribution elections;
    (F) The plan is amended to provide that the ACP test will be 
satisfied for the entire plan year in which the reduction or suspension 
occurs using the current year testing method described in Sec.  
1.401(m)-2(a)(2)(ii); and
    (G) The plan satisfies the requirements of this section (other than 
this paragraph (h)) with respect to safe harbor compensation paid 
through the effective date of the amendment.
    (2) Supplemental notice. The supplemental notice requirement of 
this paragraph (h)(2) is satisfied if each eligible employee is given a 
notice that satisfies the requirements of Sec.  1.401(k)-3(g)(2).

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E9-11481 Filed 5-15-09; 8:45 am]
BILLING CODE 4830-01-P


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