IRS Issues Guidance on SECURE Act Provisions Easing Safe Harbor Plan Burdens


By John Iekel


The IRS on Dec. 9 issued guidance that addresses certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE) Act Provisions that increase the automatic enrollment cap percentage and affect safe harbor plans, including safe harbor 401(k) plans and certain 403(b) plans. The guidance is contained in Notice 2020-86. Section 102 of the SECURE Act generally increases the maximum automatic elective deferral under an automatic enrollment safe harbor plan from 10% to 15%. Section 103 of SECURE concerns safe harbor notice requirements and retroactive safe harbor status for plans that provide safe harbor non-elective contributions. It also eliminates certain notice requirements for plans that provide those contributions and adds new provisions for the retroactive adoption of safe harbor status for those plans.


The IRS does not intend Notice 2020-86 to provide comprehensive guidance regarding Sections 102 or 103 of the SECURE Act, it says. Rather, the IRS intends the notice to provide guidance on particular issues while it works with the Treasury Department to develop regulations to fully implement those sections of the SECURE Act.


Notice 2020-86 provides initial guidance on these provisions of the SECURE Act and affects certain safe harbor 401(k) and 401(m) plans (including 403(b) plans that apply the 401(m) safe harbor). It is written in a question-and-answer format to assist small businesses and other employers that maintain safe harbor plans comply with the SECURE Act.


Guidance Concerning Section 102 of the SECURE Act


The notice says that:

  • QACA safe harbor 401(k) plan is not required to increase the maximum qualified percentage of compensation used to determine automatic elective contributions in order to maintain that status. The IRS explains that the qualified percentage under a QACA safe harbor 401(k) plan may be any percentage of compensation determined under the plan, as long as the percentage: is applied uniformly; does not exceed the maximum percentage specified in Code Section 401(k)(13)(C)(iii); and satisfies certain minimum percentage requirements specified in Section 401(k)(13)(C)(iii)(I)–(IV).

  • If a plan incorporates the maximum qualified percentage of Section 401(k)(13)(C)(iii) by reference, the plan will not fail to operate in accordance with its terms merely because the plan continues to apply the maximum qualified percentage of 10% that applied under Code Section 401(k)(13)(C)(iii) before Section 102(a) of the SECURE Act amended it. However, the notice says, the plan would need to be amended on or before the plan amendment deadline set by the SECURE Act, to provide explicitly that the plan’s maximum qualified percentage is 10%, retroactive to the first day of the first plan year beginning after Dec. 31, 2019. In addition, if a plan incorporates the maximum qualified percentage of Section 401(k)(13)(C)(iii) by reference and the plan is not amended on or before the deadline set by the SECURE Act to provide a specific maximum qualified percentage, then the plan will be treated as providing for the maximum qualified percentage under Code Section 401(k)(13)(C)(iii), as amended by Section 102(a) of the SECURE Act, effective as of the first day of the first plan year beginning after Dec. 31, 2019. In this case, the plan will have failed to operate in accordance with its terms by applying the maximum qualified percentage of 10% that applied before the SECURE Act amended it.

  • In general, the plan amendment timing provisions of Section 601 of the SECURE Act apply to a plan amendment adopted under Section 102 of the SECURE Act. In addition, a plan may be amended to reflect Section 102 after the applicable plan amendment deadline under Section 601, in accordance with the general discretionary amendment deadlines set forth in Revenue Procedure (Rev. Proc.) 2016-37, as most recently modified by Rev. Proc. 2020-40.

Guidance Concerning Section 103 of the SECURE Act


Notice 2020-68 says that:

  • Section 103(a) of the SECURE Act amended the requirements for a traditional safe harbor 401(k) plan that satisfies the safe harbor nonelective contribution requirements of Code Section 401(k)(12)(C) by eliminating the safe harbor notice requirements of Section 401(k)(12)(D). However, Section 103(a) did not eliminate the safe harbor notice requirements of Code Section 401(m)(11)(A) for a traditional safe harbor 401(m) plan that satisfies the safe harbor nonelective contribution requirements of Code Section 401(k)(12)(C).

  • Section 103(a) of the SECURE Act amended the requirements for a QACA safe harbor 401(k) plan that satisfies the safe harbor nonelective contribution requirements of Code Section 401(k)(13)(D)(i)(II) by eliminating the safe harbor notice requirements in Section 401(k)(13)(E). The amendments that Section 103(a) makes also result in the elimination of any safe harbor notice requirement under Code Section 401(m)(12) for a QACA safe harbor 401(m) plan that satisfies the safe harbor nonelective contribution requirements of Section 401(k)(13)(D)(i)(II). The result is different for a traditional safe harbor 401(m) plan than for a QACA safe harbor 401(m) plan, because Section 401(m)(11) specifically requires a traditional safe harbor 401(m) plan to satisfy the safe harbor notice requirements of Section 401(k)(12)(D), but Section 401(m)(12)(A) merely requires a QACA safe harbor 401(m) plan to satisfy the requirements for a QACA safe harbor 401(k) plan.

  • Section 103(a) of the SECURE Act does not change any other requirements that may apply to a plan that satisfies the safe harbor non-elective contribution requirements applicable to a traditional or QACA safe harbor 401(k) plan under Sections 401(k)(12)(C) or 401(k)(13)(D)(i)(II).

  • If a plan does not provide a safe harbor notice for a plan year beginning after Dec. 31, 2019, but the employer nevertheless provides a notice that includes a statement that the plan may be amended mid-year to reduce or suspend safe harbor non-elective contributions, and that otherwise satisfies the requirements for a safe harbor notice, the plan will not fail to satisfy the condition in Treas. Reg. §1.401(k)-3(g)(1)(ii)(A)(2) or Treas. Reg. §1.401(m)-3(h)(1)(ii)(A)(2) that the statement regarding the possible mid-year reduction or suspension of safe harbor non-elective contributions be included in a safe harbor notice.

  • If an employer amends a traditional or QACA safe harbor 401(k) plan (or a traditional or QACA safe harbor 401(m) plan) to reduce or suspend the plan’s safe harbor non-elective contributions during a plan year, but later amends the plan to readopt the safe harbor non-elective contributions in accordance with Code Sections 401(k)(12)(F) or 401(k)(13)(F) for the entirety of the plan year, the plan will not be required to satisfy the ADP or ACP test (as applicable) for the plan year or be subject to the top-heavy rules under Code Section 416 for the plan year. The retroactive plan amendment provisions of Sections 401(k)(12)(F) and 401(k)(13)(F), as amended by Section 103 of the SECURE Act, are not conditioned on whether a prior plan amendment reduced or suspended safe harbor non-elective contributions during the plan year.

  • If a plan is amended under Code Sections 401(k)(12)(F)(i)(II) (traditional) or 401(k)(13)(F)(i)(II) (QACA) to adopt safe harbor non-elective contributions of at least 4% of compensation for a plan year, and the safe harbor non-elective contributions are contributed to the plan after the tax filing deadline for the prior taxable year (including extensions) but before the last day under Section 401(k)(8)(A) for distributing excess contributions for the plan year, then the safe harbor non-elective contributions are not deductible for the prior taxable year. However, the safe harbor non-elective contributions are deductible for the taxable year in which they are contributed to the plan, to the extent they are otherwise deductible under Code Section 404.

  • Effective for plan years beginning after Dec. 31, 2019, in order for a plan to be amended during a plan year to adopt the safe harbor design set forth in Sections 401(k)(12) or 401(k)(13) for the plan year using safe harbor non-elective contributions, the plan must satisfy the retroactive plan amendment requirements of Sections 401(k)(12)(F) or 401(k)(13)(F), as amended by Section 103 of the SECURE Act. Accordingly, the retroactive plan amendment rules of Treas. Reg. §1.401(k)-3(f) no longer apply for those plan years.

  • Effective for plan years beginning after Dec. 31, 2019, in order for a plan to be amended during a plan year to adopt the safe harbor design set forth in Section 401(m)(12) for the plan year using safe harbor non-elective contributions, the plan must satisfy the retroactive plan amendment requirements of Section 401(k)(13)(F), as amended by Section 103 of the SECURE Act. Accordingly, the retroactive plan amendment rules of Treas. Reg. §1.401(m)-3(g) no longer apply for those plan years.

  • For plan years beginning after Dec. 31, 2019, the retroactive plan amendment requirements of Section 401(k)(12)(F), as amended by Section 103 of the SECURE Act, do not apply to an amendment adopted during a plan year that adds the safe harbor design set forth in Section 401(m)(11) (traditional) for the plan year using safe harbor non-elective contributions (rather than the retroactive plan amendment rules in Treas. Reg. §1.401(m)-3(g)).

  • In general, the plan amendment timing provisions of Section 601 of the SECURE Act apply to a plan amendment adopted under Section 103(b) or (c) of the SECURE Act. In addition, a plan may be amended after the applicable plan amendment deadline under Section 601, in accordance with the plan amendment provisions of Section 103(b) or (c).

403(b) Plans


Notice 2020-86 applies on similar terms to 403(b) plans that apply the Section 401(m) safe harbor rules under Section 403(b)(12).


Source: American Society of Pension Professionals & Actuaries

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