On January 29, 2016, the IRS issued guidance that will be of great interest to any employer sponsoring a safe harbor plan. In Notice 2016-16, the IRS approves nearly all mid-year amendments to a safe harbor plan, provided certain notice requirements are satisfied and the amendment is not on a shortlist of prohibited amendments. Prior to this guidance, employers faced uncertainty regarding what, if any, mid-year amendments could be made.


This uncertainty arose out of Treasury Regulation Section 1.401(k)-3(e)(1), which generally provides that safe harbor provisions must be adopted before the first day of the plan year and must remain in effect for the entire plan year. The IRS had generally interpreted this provision to prohibit mid-year amendments, but it was unclear as to whether this prohibition extended to all plan changes or merely those that impacted the safe harbor provisions.

New rules

In this new guidance, the IRS approves nearly all "mid-year changes" (defined as changes that are either adopted or effective on a day other than the first day of the plan year) as long as they satisfy bothof the following conditions (as applicable):

  1. The mid-year change is not a "prohibited mid-year change." The following are prohibited mid-year changes (unless required by law):  
    • Increases in the service requirement for vesting in safe harbor contributions under a qualified automatic contribution arrangement (QACA).  
    • Changes to the plan's eligibility provisions that would narrow the group of employees eligible to receive safe harbor contributions.  
    • A change to the type of safe harbor plan (for example, a change from a traditional safe harbor plan to a QACA safe harbor plan).  
    • A modification to the formula used to determine matching contributions (or the definition of compensation used to determine matching contributions), if the change increases the amount of matching contributions or permits discretionary matching contributions. Such a mid-year change is not prohibited, however, if it is adopted at least three months before the end of the plan year and made retroactively effective for the entire plan year, and if the updated safe harbor notice and election opportunities described below are provided. (Note that mid-year reductions or suspensions of matching contributions remain subject to existing guidance on such changes.)
  2. If the change impacts the information required to be included in the plan's safe harbor notice, participants are given an updated safe harbor notice within a reasonable period (normally 30 days) before the effective date of the change and a reasonable opportunity to change their deferral elections before the effective date. If the updated safe harbor notice cannot be given before the effective date of the change (such as in the case of a change that is retroactively effective), the notice must be provided as soon as practicable, but not later than 30 days after the change is adopted. 

Notice is not required if the change affects information that is not required to be included in the safe harbor notice, even if it is voluntarily included in the safe harbor notice. Also, if information regarding an anticipated mid-year change is included with the safe harbor notice given before the beginning of the plan year, the mid-year notice described above is not required.

No impact on existing guidance

The IRS clarifies that the notice is not intended to override or alter existing guidance regarding mid-year changes which are already addressed in the regulations. For instance, the following mid-year changes continue to be subject to their existing regulatory requirements:

  • Reductions or suspensions of safe harbor contributions, or changes from safe harbor to non-safe harbor status  
  • A short first plan year or a change in the plan year  
  • Adoption of safe harbor plan status on or after the beginning of the plan year

The IRS asked for comments on whether additional guidance is needed in this area, specifically regarding mid-year changes for sponsors involved in mergers and acquisitions, or plans that include an eligible automatic contribution arrangement under Code Section 414(w).

IRS Notice 2016-16 is effective for mid-year changes made on or after January 29, 2016.