United States: IRS Notice 2016-16 Broadens Rules On Mid-Year Amendments To Safe Harbor Plans


The Internal Revenue Service (IRS) recently released guidance on mid-year changes to safe harbor plans under Internal Revenue Code (Code) Sections §§401(k), 401(m) and 403(b), eliminating uncertainty and confusion as to when amendments to safe harbor plans can be made. Notice 2016-16 provides that a mid-year change either to a safe harbor plan or notice will not violate the safe harbor rules just because it is a mid-year change, so long as the plan administrator/sponsor satisfies the special notice and election opportunity conditions and the mid-year change is not explicitly prohibited. The new guidance is effective for mid-year changes made on and after January 29, 2016.


The safe harbor §401(k) plan design provides an efficient and cost-effective alternative for employers to bypass the nondiscrimination rules, including the annual ADP and ACP tests, if regulatory requirements for benefits and contributions are structured accordingly in the plan. However, safe harbor plan regulations generally require that certain plan provisions remain in effect for a 12-month period and cannot be amended during the plan year without risk of failing the nondiscrimination tests. The safe harbor plan regulations also outline requirements for the safe harbor notices, including information on content and timing.

Although the safe harbor plan rules currently provide some exceptions—including (i) adoption of a short plan year or any change the plan year; (ii) adoption of a safe harbor plan status on or after the beginning of the plan year; and (iii) reduction or suspension of safe harbor contributions or changes from safe harbor plan status to non-safe harbor plan status—these mid-year changes are subject to specific regulatory requirements, not subject to this notice.

Updated Notice and Election Opportunity Conditions

For purposes of this guidance, a safe harbor plan is a traditional §401(k) safe harbor, a qualified automatic contribution arrangement (QACA), a traditional §401(m)(11) matching safe harbor or a §401(m)(12) QACA. The IRS provides an expansive definition of mid-year change as a change that is first effective on a day other than the first day of the plan year, or a change that is effective on the first day of the plan year, but adopted after the beginning of the plan year.

If a mid-year amendment alters the plan's required safe harbor notice content, then:

  • An updated safe harbor notice describing the mid-year change and its effective date must be distributed to each affected participant, within a reasonable period (at least 30 days and not more than 90 days) before the effective date of the change;
  • Affected participants must be given a reasonable opportunity after receipt of the updated notice to change his or her cash or deferred elections (30 day election period).

Where circumstances make it impracticable to provide an updated safe harbor notice before the effective date of the change (e.g., a mid-year change retroactive to the beginning of the plan year), a notice provided as soon as practicable, but not more than 30 days after the change is adopted is considered timely. Similarly, where it is not practicable to provide a participant the special election opportunity before the effective date of the change, then the participant must have a reasonable opportunity to make or change an election as soon as practicable following the date the updated notice is provided, but not later than 30 days after the date the change is adopted.

Prohibited Mid-Year Changes

The notice outlines the following mid-year changes that remain prohibited, unless required by applicable law to be made mid-year, such as a change mandated by a statute or court decision.

  • Increase in the number of completed years of service required for an employee to have a nonforfeitable right to his or her account balance under qualified automatic contribution arrangements;
  • Reduction or narrowing of the group of employees eligible to receive safe harbor contributions;
  • Change to the type of safe harbor plan—for example, moving from a traditional §401(k) safe harbor plan to a QACA §401(k) safe harbor plan; and
  • Modification to the formula used to determine matching contributions, if the change increases the amount of the matching contributions or a change to permit discretionary matching contributions

Plan administrators and plan sponsors should also consider other applicable law that may affect the permissibility of mid-year amendments, including anti-cutback and nondiscrimination restrictions.


The new guidance gives plan administrators greater clarity, flexibility and security in implementing mid-year amendments to safe harbor plans. The notice provides examples illustrating different aspects of the guidance, which are helpful in understanding the application of the changes. If you have questions about how this guidance could affect your safe harbor or other qualified retirement plan or how to take advantage of the aforementioned changes, please contact any of the lawyers in our Employee Benefits and Executive Compensation practice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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