In a letter to the IRS, ASPPA pointed out that the only official guidance on this topic (Announcement 2007-59) is limited in scope, and merely permitted sponsors of safe harbor 401(k) plans to adopt mid-year amendments for the limited purposes of adding the availability of Roth contribution or a hardship withdrawal feature to the plan. The letter also referred to the subsequent Notice 2010-84, which permitted mid-year amendments of safe harbor plans to add in-plan Roth rollovers before December 31, 2011.

“Most of the operational concerns of safe harbor plan sponsors have not yet been addressed, and many sponsors have been left wondering whether the amendments listed in Announcement 2007-59 are the only amendments that may be adopted mid-year,” Craig P. Hoffman, general counsel for ASPPA stated in the letter.

Hoffman added, “The lack of concrete guidance over the years has produced significant uncertainty for plan sponsors faced with mid-year documentation-related issues. This uncertainty stymies the plan sponsors, commonly delaying changes that would be beneficial to the plan participants until the following plan year.”

To address these concerns and to alleviate the inaction caused by this uncertainty, the letter asked the IRS to issue guidance that provides a comprehensive list of amendments or a reasoned criteria for determining amendments that may be adopted during the year without endangering a plan’s safe harbor status under Internal Revenue Code Sections 401(k)(12), 401(k)(13), 401(m)(11) and 401(m)(12).

In the letter, ASPPA listed four categories of proposed amendments including:

- Amendments affecting contributions or participation that are, nonetheless, important to permit for plan operations purposes;

- Amendments needed to protect plan qualification;

- Amendments that affect participants’ rights but do not affect the items required to be included in the safe harbor notice; and

- Amendments that do not affect the operation of the safe harbor provisions or the 401(k) feature in general and are generally administrative or informative in nature.

ASPPA recommended the IRS clarify that corrective amendments to safe harbor 401(k) plans made in accordance with Treas. Reg. §1.401(a)(4)-11(g) are not in violation of the prohibition on mid-year amendment in Treas. Reg. §1.401(k)-3(e)(1) and will not cause the plan to fail to satisfy the safe harbor requirements for either the year for which the corrective amendment is effective for the year in which such corrective amendment is adopted.

Also recommended is that that the IRS allow plan sponsors to increase availability of a safe harbor 401(k) plan to a new group of participants during the year through amendment to liberalize eligibility requirements or the class of employees participating in the plan or by permitting the mid-year adoption of the plan by a related or acquired entity, provided the safe harbor notice requirements for mid-year entrants are satisfied.

ASPPA asked the IRS to clarify that suspension or elimination of safe harbor contributions for highly compensated employees is permissible if the conditions for suspension or elimination of safe harbor contributions for all employees under Treas. Reg. §1.401(k)-3(g) or Prop. Treas. Reg. §1.401(k)-3(g)(1)(ii) are satisfied.

The Association recommended the IRS clarify that mid-year modifications to plan documents to maintain the plan’s qualification (such as in relation to mandatory amendments or remedial amendments in relation to favorable determination letter applications, or a plan restatement to comply with the plan’s five- or six-year remedial amendment cycle) will not violate the prohibition on mid-year amendments under Treas. Reg. §1.401(k)-3(e)(1).

ASPPA suggested the IRS clarify that mid-year amendments that do not violate Code Section 411(d)(6) or affect the language of the safe harbor notice will not cause a safe harbor 401(k) plan to violate Treas. Reg. §1.401(k)-3(e)(1), and clarify that mid-year amendments that do not affect plan operations will not cause a safe harbor 401(k) plan to violate Treas. Reg. §1.401(k)-3(e)(1).

The full text of the letter can be found here.