Federal Register: July 17, 2003 (Volume 68, Number 137)
DOCID: FR Doc 03-17755
DEPARTMENT OF THE TREASURY
Veterans Affairs Department
CFR Citation: 26 CFR Part 1
REG ID: [REG-108639-99]
NOTICE: Part II
DOCUMENT ACTION: Notice of proposed rulemaking and notice of public hearing.
RINs 1545-AX26, 1545-AX43
DATES: Written and electronic comments and requests to speak (with outlines of oral comments) at a public hearing scheduled for November 12, 2003, must be received by October 22, 2003.
This document contains proposed regulations that would provide guidance for certain retirement plans containing cash or deferred arrangements under section 401(k) and providing for matching contributions or employee contributions under section 401(m). These regulations affect sponsors of plans that contain cash or deferred arrangements or provide for employee or matching contributions, and participants in these plans. This document also contains a notice of public hearing on these proposed regulations.
Treasury Department, Internal Revenue Service,
DOCUMENT BODY 2:
Retirement Plans; Cash or Deferred Arrangements Under Section 401(k) and Matching Contributions or Employee Contributions Under Section 401(m)
Paperwork Reduction Act
The collections of information contained in this notice of proposed rulemaking have 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 collections 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, W:CAR:MP:T:T:SP Washington, DC 20224. Comments on the collections of information should be received by September 15, 2003. Comments are specifically requested concerning:
Whether the proposed collections of information are necessary for the proper performance of the functions of the IRS, including whether the information will have practical utility;
The accuracy of the estimated burden associated with the proposed collection of information (see below);
How the quality, utility, and clarity of the information to be collected may be enhanced;
How the burden of complying with the proposed collection of information may be minimized, including through the application of automated collection techniques or other forms of information technology; and
Estimates of capital or startup costs and costs of operation, maintenance, and purchase of services to provide information.
The collections of information in these proposed regulations are contained in Sec. Sec. 1.401(k)1(d)(3)(iii)(C), 1.401(k)2(b)(3), 1.401(k)3(d), 1.401(k)3(f), 1.401(k)3(g), 1.401(k)4(d)(3), 1.401(m)3(e), 1.401(m)3(g) and 1.401(m)3(h). The information required by Sec. Sec. 1.401(k)3(d), 1.401(k)3(f), 1.401(k)3(g), 1.401(m)3(e), 1.401(m)3(g) and 1.401(m)3(h) is required by the IRS to comply with the requirements of sections 401(k)(12)(D) and 401(m)(11)(A)(ii) regarding notices that must be provided to eligible participants to apprize them of their rights and obligations under certain plans. This information will be used by participants to determine whether to participate in the plan, and by the IRS to confirm that the plan complies with applicable qualification requirements to avoid adverse tax consequences. The information required by Sec. 1.401(k)4(d)(3) is required by the IRS to comply with the requirements of section 401(k)(11)(B)(iii)(II) regarding notices that must be provided to eligible participants to apprize them of their rights and obligations under certain plans. This information will be used by participants to determine whether to participate in the plan, and by the IRS to confirm that the plan complies with applicable qualification requirements to avoid adverse tax consequences. The information required by Sec. 1.401(k)2(b)(3) will be used by employees to file their income tax returns and by the IRS to assess the correct amount of tax. The information provided under Sec. 1.40(k)1(d)(3)(iii)(C) will be used by employers in determining whether to make hardship distributions to participants. The collections of information are mandatory. The respondents are businesses or other forprofit institutions, and nonprofit institutions.
Estimated total annual reporting burden: 26,500 hours.
The estimated annual burden per respondent is 1 hour, 10 minutes.
Estimated number of respondents: 22,500.
The estimated annual frequency of responses: On occasion.
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 new comprehensive regulations setting forth the requirements (including the nondiscrimination requirements) for cash or deferred arrangements under section 401(k) and for matching contributions and employee contributions under section 401(m) of the Internal Revenue Code (Code).
Comprehensive final regulations under sections 401(k) and 401(m) of
the Code were last published in the Federal Register in TD 8357
(published August 9, 1991) and TD 8376 (published December 2, 1991) and
amended by TD 8581 published on December 22, 1994. Since 1994, many
significant changes have been made to sections 401(k) and 401(m) by the
Small Business Job Protection Act of 1996, Public Law 104188 (110
Stat. 1755) (SBJPA), the Taxpayer Relief Act of 1997, Public Law 10534
(111 Stat. 788) (TRA '97), and the Economic Growth and Tax Relief [[Page 42477]]
Reconciliation Act of 2001, Public Law 10716 (115 Stat. 38) (EGTRRA).
The most substantial changes to the section 401(k) and section 401(m) provisions were made to the methodology for testing the amount of elective contributions, matching contributions, and employee contributions for nondiscrimination. Section 401(a)(4) prohibits discrimination in contribution or benefits in favor of highly compensated employees (within the meaning of section 414(q)) (HCEs). Section 401(k) provides a special nondiscrimination test for elective contributions under a cash or deferred arrangement that is part of a profitsharing plan, stock bonus plan, preERISA money purchase plan, or rural cooperative plan, called the actual deferral percentage (ADP) test. Section 401(m) provides a parallel test for matching contributions and employee contributions under a defined contribution plan, called the actual contribution percentage (ACP) test. These special nondiscrimination standards are provided in recognition of the fact that the amount of elective contributions and employee contributions (and corresponding matching contributions) is determined by the employee's utilization of the contribution opportunity offered under the plan. This is in contrast to the situation in other defined contribution plans where the amount of contributions is determined by the amount the employer decides to contribute.
Sections 401(k) and 401(m) provide alternative methods for satisfying the applicable nondiscrimination rules: a mathematical comparison and a number of designbased methods. The inherent variation in the amount of contributions among employees noted above, and the fact that the economic situation of HCEs may make them more likely to make elective or employee contributions, means that the usual nondiscrimination test under section 401(a)(4)under which for each HCE with a contribution level there must be a specified number of nonhighly compensated employees (NHCEs) with equal or greater contributionsis not appropriate. Instead, average rates of contribution are used in the ADP and ACP tests (with a builtin differential permitted for HCEs) and minimum standards for nonelective or matching contributions are provided in the designbased
Prior to the enactment of SBJPA, sections 401(k) and 401(m)
provided only for mathematical comparison. Specifically, the ADP and
ACP tests compare the average of the rates of contributions of the HCEs
to the average of the rates of contributions of the NHCEs. For this
purpose, the rate of contributions for an employee is the amount of
contributions for an employee divided by the employee's compensation
for the plan year. These tests are satisfied if the average rate of HCE
contributions does not exceed 1.25 times the average rate of
contributions of the NHCEs. Alternatively, these tests are satisfied if
the average rate of HCE contributions does not exceed the average rate
of contributions of the NHCEs by more than 2 percentage points and is
no more than 2 times the average rate of contributions of the NHCEs. To
the extent that these tests are not satisfied, the statute provides for
correction through distribution to HCEs (or forfeiture of nonvested
matching contributions) or, to the extent provided in regulations, recharacterization of elective contributions as aftertax
contributions. In addition, to the extent provided in regulations, nonelective contributions can be made to NHCEs and elective contributions and certain matching contributions can be moved between the ADP and ACP tests, in order to reduce the discrepancy between the average rates of contribution for the HCEs and the NHCEs.
SBJPA added designbased alternative methods of satisfying the ADP and ACP tests. Under these methods, if a plan meets certain contribution and notice requirements, the plan is deemed to satisfy the nondiscrimination rules without regard to actual utilization of the contribution opportunity offered under the plan. These regulations reflect this change and the other changes that were made to sections 401(k) and 401(m) under SBJPA, TRA '97 and EGTRRA since the issuance of final regulations under those sections.
SBJPA made the following significant changes affecting section 401(k) and section 401(m) plans:
[sbull] The ADP test and ACP test were amended to allow the use of prior year data for NHCEs.
[sbull] The method of distributing to correct failures of the ADP test or ACP test was changed to require distribution to the HCEs with the highest contributions.
[sbull] Taxexempt organizations and Indian tribal governments are permitted to maintain section 401(k) plans.
[sbull] A safe harbor alternative to the ADP test and ACP test was introduced in order to provide a designbased method to satisfy the nondiscrimination tests.
[sbull] The SIMPLE 401(k) plan (an alternative designbased method to satisfy the nondiscrimination tests for small employers that corresponds to the provisions of section 408(p) for SIMPLE IRA plans by providing for smaller contributions) was added.
[sbull] A special testing option was provided for plans that permit participation before employees meet the minimum age and service requirements, in order to encourage employers to permit employees to start participating sooner.
TRA '97 made the following significant changes affecting section 401(k) and section 401(m) plans:
[sbull] State and local governmental plans are treated as automatically satisfying the ADP and ACP tests.
[sbull] Matching contributions for selfemployed individuals are no longer treated as elective contributions.
EGTRRA made the following significant changes affecting section 401(k) and section 401(m) plans:
[sbull] Catchup contributions were added to provide for additional elective contributions for participants age 50 or older.
[sbull] The Secretary was directed to change the section 401(k) regulations to shorten the period of time that an employee is stopped from making elective contributions under the safe harbor rules for hardship distributions.
[sbull] Beginning in 2006, section 401(k) plans will be permitted to allow employees to designate their elective contributions as ``Roth contributions'' that will be subject to taxation under the rules applicable to Roth IRAs under section 408A.
[sbull] Section 401(k) plans using the designbased safe harbor and providing no additional contributions in a year are exempted from the topheavy rules of section 416.
[sbull] Distributions from section 401(k) plans are permitted upon ``severance from employment'' rather than ``separation from service.'' [sbull] The multiple use test specified in section 401(m)(9) is repealed.
[sbull] Faster vesting is required for matching contributions. [sbull] Matching contributions are taken into account in satisfying the topheavy requirements of section 416.
In addition, since publication of the final regulations, a number
of items of guidance affecting section 401(k) and section 401(m) plans
addressing these statutory changes and other items have been issued by the IRS, including:
[sbull] Notice 972 (19971 C.B. 348) provided initial guidance on prior year ADP and ACP testing and guidance on correction of excess contributions and excess aggregate contributions, including distribution to the HCEs with the highest contributions.
[sbull] Rev. Proc. 979 (19971 C.B. 624) provided model amendments for SIMPLE 401(k) plans.
[sbull] Notice 981 (19981 C.B. 327) provided additional guidance on prior year testing issues.
[sbull] Notice 9852 (19982 C.B. 632) and Notice 20003 (20001 C.B. 413) provided guidance on safe harbor section 401(k) plans. [sbull] Rev. Rul. 20008 (20001 C.B. 617) addressed the use of automatic enrollment features in section 401(k) plans.
[sbull] Notice 200156 (20012 C.B. 277) and Notice 20024 (20022 I.R.B. 298) provided initial guidance related to the changes made by EGTRRA.
These items of guidance are incorporated into these proposed regulations with some modifications and the proposed regulations have been reorganized as indicated in the tables of contents at proposed Sec. Sec. 1.401(k)0 and 1.401(m)0. Treasury and the IRS believe that a single restatement of the section 401(k) and section 401(m) rules serves the interests of plan sponsors, thirdparty administrators, plan participants, and plan beneficiaries.
The process of reviewing and integrating all existing administrative guidance under sections 401(k) and 401(m) has led Treasury and the IRS to reconsider certain rules and to propose certain changes in those rules. To the extent practicable, this preamble identifies the substantive changes and explains the underlying analysis. In many cases, the changes will clarify or simplify existing guidance and will reduce plan administrative burdens.
Treasury and the IRS appreciate the fact that plan sponsors and thirdparty administrators have developed systems and practices in the application of existing administrative guidance to the design and operation of section 401(k) and section 401(m) plans. In many cases, the details of these systems and practices have been determined through a plan sponsor's or administrator's interpretation of specific terms in existing guidance or, where no guidance has been provided, through a plan sponsor's or administrator's best legal and practical judgment. As a result, these systems and practices may differ from administrator to administrator, from sponsor to sponsor, or from plan to plan.
Treasury and the IRS also recognize that certain of the substantive changes in these proposed regulations will require changes in plan design or plan operation. However, the proposed regulations are not otherwise intended to require significant changes in plan systems and practices that were developed under existing guidance and that conform to the requirements of sections 401(k) and 401(m). Therefore, Treasury and the IRS specifically request that plan sponsors and thirdparty administrators comment on points where the proposed regulations might have the unintended effect of requiring a change to plan systems or practices so that Treasury and the IRS can further evaluate whether such a change is in fact appropriate or whether Treasury and the IRS should instead make an adjustment in the final regulations. Explanation of Provisions
1. Rules Applicable to All Cash or Deferred Arrangements
Section 401(k)(1) provides that a profitsharing, 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 would set forth the general definition of a cash or deferred arrangement (CODA), the additional requirements that a CODA must satisfy in order to be a qualified CODA, and the treatment of contributions made under a qualified or nonqualified CODA.
As under the existing final regulations, a CODA is defined as an
arrangement under which employees can make a cash or deferred election
with respect to contributions to, or accruals or benefits under, a plan
intended to satisfy the requirements of section 401(a). A cash or
deferred election is any direct or indirect election by an employee (or
modification of an earlier election) to have the employer either: (1)
Provide an amount to the employee in the form of cash or some other
taxable benefit that is not currently available; or (2) contribute an
amount to a trust, or provide an accrual or other benefit, under a plan
deferring the receipt of compensation. A cash or deferred election can
include a salary reduction agreement, but the specific reference to a
salary reduction agreement has been eliminated as unnecessary. In
addition, the proposed regulations would incorporate prior guidance on
automatic enrollment, and thus would reflect the fact that a CODA can
specify that the default that applies in the absence of an affirmative
election by an employee can be a contribution to a trust, as described in Rev. Rul. 20008.\1\
\1\ The Department of Labor has advised Treasury and the IRS that, under Title I of the Employee Retirement Income Security Act of 1974 (ERISA), fiduciaries of a plan must ensure that the plan is administered prudently and solely in the interest of plan
participants and beneficiaries. While ERISA section 404(c) may serve to relieve certain fiduciaries from liability when participants or beneficiaries exercise control over the assets in their individual accounts, the Department of Labor has taken the position that a participant or beneficiary will not be considered to have exercised control when the participant or beneficiary is merely apprised of investments that will be made on his or her behalf in the absence of instructions to the contrary. See 29 CFR 2550.404c1 and 57 FR 46924.
The proposed regulations would continue to provide that the definition of a CODA excludes contributions that are treated as after tax employee contributions at the time of the contribution and contributions made pursuant to certain onetime irrevocable elections, but would also specify that a CODA does not include an arrangement under which dividends paid to an ESOP are either distributed to a participant or reinvested in employer securities in the ESOP pursuant to an election by the participant or beneficiary under section 404(k)(2)(A)(iii) as added by EGTRRA.
The proposed regulations would also specify that a contribution is made pursuant to a cash or deferred election only if the contribution is made after the election is made. Thus, a contribution made in anticipation of an employee's election is not treated as an elective contribution. Similarly, the regulations would provide that a contribution is made pursuant to a cash or deferred election only if the contribution is made after the employee's performance of services which relate to the compensation that, but for the election, would be paid to the employee. (If the payment of compensation would have preceded the performance of services, a contribution made no earlier than the date the compensation would have been paid, but for the election, is also treated as made pursuant to a cash or deferred election). Accordingly, amounts contributed in anticipation of future performance of services generally would not be treated as elective contributions under section 401(k). These restrictions on the timing of contributions are consistent with the fundamental premise of elective contributions, that these are contributions that are paid to the plan as a result of an employee election not to receive those amounts in cash. Moreover, ensuring that contributions are made after the employee's election furthers plan administrability.
The deductibility of these prefunded elective contributions (as
well as prefunded matching contributions) for the taxable year in which
the contribution was made was addressed in Notice 200248 (200229
I.R.B.139). In that notice, the IRS indicated that it was reviewing
issues other than the deductibility of prefunded contributions but, pending additional guidance,
would not challenge the deductibility of the contributions provided actual payment is made during the taxable year for which the deduction is claimed and the amount deducted does not exceed the applicable limit under section 404(a)(3)(A)(i). After considering this issue, the IRS and Treasury have concluded that the prefunding of elective contributions and matching contributions is inconsistent with sections 401(k) and 401(m). Thus, under these proposed regulations, an employer would not be able to prefund elective contributions to accelerate the deduction for elective contributions. Once these regulations are finalized, employer contributions made under the facts in Notice 2002 48 would no longer be permitted to be taken into account under the ADP test or the ACP test and would not satisfy any plan requirement to provide elective contributions or matching contributions.
2. Qualified CODAs
A. General Rules Relating to Qualified CODAs
Elective contributions under a qualified CODA are treated as employer contributions and generally are not included in the employee's gross income at the time the cash would have been received (but for the cash or deferred election), or at the time contributed to the plan. Elective contributions under a qualified CODA are included in the employee's gross income however, if the contributions are in excess of the section 402(g) limit for a year, are designated Roth contributions (under section 402A, effective for tax years beginning after December 31, 2005) or are recharacterized as aftertax contributions as part of a correction of an ADP test failure.
A CODA is not qualified unless it is part of a profit sharing plan, stock bonus plan, preERISA money purchase plan, or rural cooperative plan and provides for an election between contributions to the plan or payments directly in cash. In addition, a CODA is not qualified unless it meets the following requirements: (1) The elective contributions under the CODA satisfy either the ADP test set forth in section 401(k)(3) or one of the designbased alternatives in section 401(k)(11) or (12); (2) elective contributions under the CODA are nonforfeitable at all times; (3) elective contributions are distributable only on the occurrence of certain events, including attainment of age 59\1/2\, hardship, death, disability, severance from employment, or termination of the plan; (4) the group of employees eligible to participate in the CODA satisfies the coverage requirements of section 410(b)(1); (5) no other benefit (other than matching contributions or another specified benefit) is conditioned, directly or indirectly, upon the employee's making or not making elective contributions under the CODA; and (6) no more than 1 year of service is required for eligibility to elect to make a cash or deferred election.
Subject to certain exceptions, State and local governmental plans are not allowed to include a qualified CODA. Plans sponsored by Indian tribal governments and rural cooperatives are allowed to include a qualified CODA.
B. Nondiscrimination Rules Applicable to CODAs
As under the existing regulations, the proposed regulations would provide that the special nondiscrimination standards set forth in section 401(k) are the exclusive means by which a qualified CODA can satisfy the nondiscrimination in amount of contribution requirement of section 401(a)(4). These special nondiscrimination standards now include: the ADP test, the ADP safe harbor and the SIMPLE 401(k) plan. Pursuant to section 401(k)(3)(G), a State or local governmental plan is deemed to satisfy the ADP test.
In addition, as under existing regulations, the plan must satisfy the requirements of Sec. 1.401(a)(4)4 with respect to the nondiscriminatory availability of benefits, rights and features, including the availability of each level of elective contributions, matching contributions, and aftertax employee contributions. The provisions of the existing regulations related to compliance with sections 410(b) and 401(a)(4) would be revised to clarify the relationship of the rules under sections 410(b) and 401(a)(4) to the requirements for a qualified CODA and to remove redundant provisions. Except as provided below, however, these rules are substantively unchanged.
These proposed regulations are designed to provide simple, practical rules that accommodate legitimate plan changes. At the same time, the rules are intended to be applied by employers in a manner that does not make use of changes in plan testing procedures or other plan provisions to inflate inappropriately the ADP for NHCEs (which is used as a benchmark for testing the ADP for HCEs) or to otherwise manipulate the nondiscrimination testing requirements of section 401(k). Further, these nondiscrimination requirements are part of the overall requirement that benefits or contributions not discriminate in favor of HCEs. Therefore, a plan will not be treated as satisfying the requirements of section 401(k) if there are repeated changes to plan testing procedures or plan provisions that have the effect of distorting the ADP so as to increase significantly the permitted ADP for HCEs, or otherwise manipulate the nondiscrimination rules of section 401(k), if a principal purpose of the changes was to achieve such a result.
C. Aggregation and Disaggregation of Plans
The proposed regulations would consolidate the rules in the
existing regulations regarding identification of CODAs and plans for
purposes of demonstrating compliance with the requirements of section
401(k). As under the existing regulations, all CODAs included in a plan are treated as a single CODA for purposes of applying the
nondiscrimination tests. For this purpose, a plan is generally defined by reference to Sec. 1.410(b)7(a) and (b) after application of the mandatory disaggregation rules of Sec. 1.410(b)7(c) (other than the mandatory disaggregation of section 401(k) and section 401(m) plans) and permissive aggregation rules of Sec. 1.410(b)7(d), as modified under these regulations. For example, if a plan covers collectively bargained employees and noncollectively bargained employees, the elective contributions for the separate groups of employees must be subject to separate nondiscrimination tests under section 401(k). The proposed regulations would also retain the special rules in the existing regulations that permit the aggregation of certain employees in different collective bargaining units and the prohibition on restructuring under Sec. 1.401(a)(4)9(c).
The proposed regulations would change the treatment of a CODA under
a plan which includes an ESOP. Section 1.410(b)7(c)(2) provides that
the portion of a plan that is an ESOP and the portion that is not an
ESOP are treated as separate plans for purposes of section 410(b)
(except as provided in Sec. 54.497511(e)). Accordingly, under the existing regulations, such a plan must apply two separate
nondiscrimination tests: one for elective contributions going into the ESOP portion (and invested in employer stock) and one for elective contributions going in the nonESOP portion of the plan. The additional testing results in increased expense and administrative difficulty for the plan and creates the possibility that the ESOP portion or the non ESOP portion may fail the ADP test or ACP test because HCEs may be more [[Page 42480]]
or less likely to invest in employer securities than NHCEs.
Since the issuance of the existing regulations, the use of an ESOP as the employer stock fund in a section 401(k) plan has become much more widespread. In light of this development, the proposed regulations would eliminate disaggregation of the ESOP and nonESOP portions of a single section 414(l) plan for purposes of ADP testing. The same rule would apply for ACP testing under section 401(m). In addition, the proposed regulations would provide that, for purposes of applying the ADP test or the ACP test, an employer could permissively aggregate two section 414(l) plans, one that is an ESOP and one that is not.
However, the exception to mandatory disaggregation of ESOPs from nonESOPs set forth in these proposed regulations would not apply for purposes of satisfying section 410(b). Accordingly, the group of eligible employees under the ESOP and nonESOP portions of the plan must still separately satisfy the requirements of sections 401(a)(4) and 410(b).
The proposed regulations would also provide that a single testing method must apply to all CODAs under a plan. This has the effect of restricting an employer's ability to aggregate section 414(l) plans for purposes of section 410(b), if those plans apply inconsistent testing methods. For example, a plan that applies the ADP test of section 401(k)(3) may not be aggregated with a plan that uses the ADP safe harbor of section 401(k)(12) for purposes of section 410(b). D. Restrictions on Withdrawals
As discussed above, a qualified CODA must provide that elective contributions may only be distributed after certain events, including hardship and severance from employment. EGTRRA amended section 401(k)(2)(B)(i)(I) by replacing ``separation from service'' with ``severance from employment.'' This change eliminated the ``same desk rule'' as a standard for distributions under section 401(k) plans.
In addition, EGTRRA amended Code section 401(k)(10) by deleting
disposition by a corporation of substantially all of the assets of a
trade or business and disposition of a corporation's interest in a
subsidiary, leaving termination of the plan as the only distributable
event described in section 401(k)(10). Finally, EGTRRA directs the
Secretary of the Treasury to revise the regulations relating to
distributions under section 401(k)(2)(B)(i)(IV) to provide that the
period during which an employee is prohibited from making elective and
employee contributions following a hardship distribution is 6 months (instead of 12 months as required under Sec. 1.401(k)
1(d)(2)(iv)(B)(4) of the existing regulations).\2\
\2\ Under section 402(c), as amended by the IRS Restructuring and Reform Act of 1998, Public Law 105206 (112 Stat. 685), and EGTRRA, a hardship distribution is not an eligible rollover distribution. While the change affects distributions from a section 401(k) plan, there is not specific reference to the change in these proposed regulations because these regulations are under sections 401(k) and 401(m).
Notice 200156 and Notice 20024 provided guidance on these EGTRRA changes to the distribution rules for elective contributions. That guidance is incorporated in these proposed regulations. In connection with the change to severance from employment, comments are requested on whether a change in status from employee to leased employee described in section 414(n) should be treated as a severance from employment that would permit a distribution to be made. In addition, the proposed regulations do not include reference to ``retirement'' (included in the existing regulation) as an event allowing distribution because retirement is not listed in the statute, and is subsumed by severance from employment.
In addition to the statutory changes, the rules relating to hardship distributions have been reorganized in order to clarify certain ambiguities, including the relationship between the generally applicable rules, employee representations, and the safe harbors provided under the existing regulations. The existing regulations set forth two basic requirements (i.e., the employee has an immediate and heavy financial need and the distribution is necessary to satisfy that need) followed by safe harbor provisions. The proposed regulations would retain those basic requirements, but would clarify that each safe harbor is separately applicable to each basic requirement. In addition, the proposed regulations would provide that an employee representation used for purposes of determining that a distribution is necessary to satisfy an immediate and heavy financial need must provide that the need cannot reasonably be relieved by any available distribution or nontaxable plan loan (even if the distribution or loan would not be sufficient to satisfy the financial need), but need not provide that a loan from a commercial source will be taken if no such loan in an amount sufficient to satisfy the need is available on reasonable commercial terms.
The proposed regulations would also modify the existing regulations to add other types of defined contribution plans to the list of plans that an employer may maintain after the termination of the plan that contains the qualified CODA while still providing for distribution of elective contributions upon plan termination. The list of such plans has been expanded to include not only an ESOP and a SEP, but also a SIMPLE IRA plan, a plan or contract that satisfies section 403(b) and a section 457 plan.
Finally, under the existing regulations, a plan that receives a plantoplan transfer that includes elective contributions, QNECs, or QMACs, must provide that the restrictions on withdrawals continue after the transfer. These proposed regulations would also make explicit a requirement that the transferor plan will fail to comply with the restrictions on withdrawals if it transfers elective contributions, QNECs, or QMACs to a plan that does not provide for these restrictions. However, a transferor plan will not fail to comply with this requirement if it reasonably concludes that the transferee plan provides for restrictions on withdrawals. What constitutes a basis for a reasonable conclusion would be comparable to the rules related to acceptance of rollover distributions. See Sec. 1.401(a)(31)1, A14. E. Other Rules for Qualified CODAs
The proposed regulations would generally retain the additional requirements set forth in the existing regulations that a CODA must satisfy in order to be qualified, with some modifications. First, in order to be a qualified CODA the arrangement must provide an employee with an effective opportunity to elect to receive the amount in cash no less than once during the plan year. Under the proposed regulations, whether an employee has an effective opportunity is determined based on all the relevant facts and circumstances, including notice of the availability of the election, the period of time before the cash is currently available during which an election may be made, and any other conditions on elections.
The proposed regulations would also provide that a plan must
provide for satisfaction of one of the specific nondiscrimination
alternatives described in section 401(k). As with the existing
regulations, the plan may accomplish this by incorporating by reference
the ADP test of section 401(k)(3) and the regulations under proposed
Sec. 1.401(k)2, if that is the nondiscrimination alternative being [[Page 42481]]
used. If, with respect to the nondiscrimination alternative being used there are optional choices, the plan must provide which of the optional choices will apply. For example, a plan that uses the ADP test of section 401(k)(3) must specify whether it is using the current year testing method or prior year testing method. Additionally, a plan that uses the prior year testing method must specify whether the ADP for eligible NHCEs for the first plan year is 3% or the ADP for the eligible NHCEs for the first plan year. Similarly, a plan that uses the safe harbor method must specify whether the safe harbor contribution will be the nonelective safe harbor contribution or the matching safe harbor contribution and is not permitted to provide that ADP testing will be used if the requirements for the safe harbor are not satisfied. The safe harbors are intended to provide employees with a minimum threshold in benefits in exchange for easier compliance for the plan sponsor. It would be inconsistent with this approach to providing benefits to allow an employer to deliver smaller benefits to NHCEs and revert to testing.
The proposed regulations would retain the existing rules relating to the section 401(k)(4)(A) prohibition on having benefits (other than a match) contingent on making or not making an elective contribution. However, the proposed regulations would specify that, in the case of a benefit that requires an amount to be withheld from an employee's pay, an employer is not violating the section 401(k)(4)(A) contingent benefit rule merely because the CODA restricts elective contributions to amounts available after such withholding from the employee's pay (after deduction of all applicable income and employment taxes). In addition, these proposed regulations also reflect the amendment to section 416(c)(2)(A) under which matching contributions can be taken into account for purposes of satisfying the topheavy minimum contribution requirement without violating the prohibition on making benefits contingent on making or not making elective contributions.
To reflect the amendment of section 401(k)(4)(B) by SBJPA to allow tax exempt organizations to maintain section 401(k) plans, the proposed regulations would also eliminate the provision prohibiting a taxexempt employer from adopting a section 401(k) plan.
As under the existing final regulations, these proposed regulations would provide that a partnership is permitted to maintain a CODA, and individual partners are permitted to make cash or deferred elections with respect to compensation attributable to services rendered to the entity, under the same rules that apply to commonlaw employees. This rule has been extended to sole proprietors. The provisions of these regulations also reflect the enactment of section 402(g)(8) (initially section 402(g)(9) as enacted by TRA '97) providing that matching contributions with respect to partners and sole proprietors are no longer treated as elective contributions.
3. Nonqualified CODAs
The proposed regulations would generally retain the rules in the
existing regulations applicable to a nonqualified CODA (i.e., a CODA
that fails one or more of the applicable requirements to be a qualified
CODA). Because elective contributions under such an arrangement are not
entitled to the constructive receipt relief set forth in section
402(e)(3), the contributions are currently taxable to the employee. In
addition, the plan to which such contributions are made must satisfy
any nondiscrimination requirements that would otherwise apply under section 401(a)(4).
4. The Actual Deferral Percentage (ADP) Test
A. General Rules Relating to the ADP Test
Section 1.401(k)2 sets forth the rules for a CODA that is applying
the ADP test contained in section 401(k)(3). Under the ADP test, the
percentage of compensation deferred for the eligible HCEs is compared
annually to the percentage of compensation deferred for eligible NHCEs,
and if certain limits are exceeded by the HCEs, corrective action must
be taken by the plan. Correction can be made through the distribution of excess contributions, the recharacterization of excess
contributions, or the contribution of additional employer
Section 401(k)(3)(A), as amended by SBJPA, generally provides for the use of prior year data in determining the ADP of NHCEs, while current year data is used for HCEs. This testing option is referred to as the prior year testing method. Alternatively, a plan may provide for the use of current year data for determining the ADPs for both NHCEs and HCEs, which is known as the current year testing method. The proposed regulations would use the term applicable year to describe the year for which the ADP is determined for the NHCEs.
Section 401(k)(3)(F), as added by SBJPA, provides that a plan benefitting otherwise excludable employees and that, pursuant to section 410(b)(4)(B), is being treated as two separate plans for purposes of section 410(b), is permitted to disregard NHCEs who have not met the minimum age and service requirements of section 410(a)(1)(A). Thus, the proposed regulations would permit such a plan to perform the ADP test by comparing the ADP for all eligible HCEs for the plan year and the ADP of eligible NHCEs for the applicable year, disregarding all NHCEs who have not met the minimum age and service requirements of section 410(a)(1)(A). The proposed regulations treat this rule as permissive. Accordingly, the new statutory provision does not eliminate the existing testing option under which a plan benefitting otherwise excludable employees is disaggregated into separate plans where the ADP test is performed separately for all eligible employees who have completed the minimum age and service requirements of section 410(a)(1)(A) and for all eligible employees who have not completed the minimum age and service requirements of section 410(a)(1)(A).
B. Elective Contributions Used in the ADP Test
The proposed regulations would generally follow the existing regulations in defining which elective contributions are reflected in the ADP test and which ones are not. The proposed regulations would reflect the rule contained in the regulations under section 414(v), under which catchup contributions that are in excess of a statutory limit or an employerprovided limit are not taken into account under the ADP test. See Sec. 1.414(v). In addition, the proposed regulations would incorporate the rule in Sec. 1.402(g)1 that provides excess deferrals that are distributed are still taken into account under the ADP test (with the exception of deferrals made by NHCEs that were in violation of section 401(a)(30)). The proposed regulations retain the rule that elective contributions must be paid to the trust within 12 months after the end of the plan year. However, for plans subject to Title I of ERISA, contributions must be paid to the trust much sooner in order to satisfy the Department of Labor's regulations relating to when elective contributions become plan assets.
Section 401(k)(3) provides that the actual deferral ratio (ADR) of
an HCE who is eligible to participate in 2 or more CODAs of the same
employer is calculated by treating all CODAs in which the employee is
eligible to participate as one CODA. The existing regulations implement this rule by aggregating the elective contributions of
such an HCE for all plan years that end with or within a single calendar year. This can yield an inappropriate result if the plan years are different, because more than 12 months of elective contributions could be included in an employee's ADR. These proposed regulations would modify this rule to provide that the ADR for each HCE participating in more than one CODA is determined by aggregating the HCE's elective contributions that are within the plan year of the CODA being tested. In addition, the definition of period of participation for purposes of determining compensation would be modified to take into account periods of participation under another plan where the elective contributions must be aggregated for an HCE. As a result, even in the case of plans with different plan years, each of the employer's CODAs will use 12 months of elective contributions and 12 months of compensation in determining the ADR for an HCE who participates in multiple arrangements.
The proposed regulations would retain the rule in the existing regulations that provides that the HCE aggregation of elective contributions under CODAs does not apply where the CODAs are within plans that cannot be aggregated under Sec. 1.410(b)7(d), but only after applying the modifications to the section 410(b) aggregation and disaggregation rules for section 401(k) plans provided in the proposed regulations. The nonapplication of the HCE aggregation rule would have less significance in light of the change described above relating to the elimination of the required disaggregation of ESOP and nonESOP plans. In addition, the proposed regulations would clarify that, in determining whether two plans could be aggregated for this purpose, the prohibition on aggregating plans with CODAs that apply inconsistent testing methods set forth under these proposed regulations and the section 410(b) prohibition on aggregating plans that have different plan years would not apply.
C. Additional Employer Contributions Used in the ADP Test
The proposed regulations would generally retain the rules in the existing regulations permitting a plan to take qualified nonelective contributions or qualified matching contributions (i.e., nonelective or matching contributions that satisfy the vesting and distribution limitations of section 401(k)(2)(B) and (C)) into account under the ADP test, except as described below. Thus, an employer whose CODA has failed the ADP test can correct this failure by making additional qualified nonelective contributions (QNECs) or qualified matching contributions (QMACs) for its NHCEs. The proposed regulations would no longer describe such contributions as being treated as elective contributions under the arrangement, but would nonetheless permit such contributions to be taken into account under the ADP test.
As under the existing regulations, these proposed regulations would
provide that QNECs must satisfy four requirements in addition to the
vesting and distribution rules described above before they can be taken
into account under the ADP test: (1) The amount of nonelective
contributions, including the QNECs that are used under the ADP test or
the ACP test, must satisfy section 401(a)(4); (2) the nonelective
contributions, excluding the QNECs that are used under the ADP test or
the ACP test, must satisfy section 401(a)(4); (3) the plan to which the
QNEC or QMAC is made must be a plan that can be aggregated with the
plan maintaining the CODA; and (4) the QNECs or QMACs must not be
contingent on the performance of services after the allocation date and
must be contributed within 12 months after the end of the plan year
within which the contribution is to be allocated.\3\ Thus, in the case
of a plan using prior year ADP testing, any QNECs that are to be
allocated to the NHCEs for the prior plan year must be contributed
before the last day of the current plan year in order to be taken into account.
\3\ With respect to this timing requirement, it should be noted that in order to be taken into account for purposes of section 415(c) for a limitation year, the contributions will need to be made no later than 30 days after the end of the section 404(a)(6) period applicable to the taxable year with or within which the limitation year ends.
Some plans provide a correction mechanism for a failed ADP test that targets QNECs to certain NHCEs in order to reduce the total contributions to NHCEs under the correction. Under the method that minimizes the total QNECs allocated to NHCEs under the correction, the employer makes a QNEC to the extent permitted by the section 415 limits to the NHCE with the lowest compensation during the year in order to raise that NHCE's ADR. If the plan still fails to pass the ADP test, the employer continues expanding the group of NHCEs who receive QNECs to the next lowestpaid NHCE until the ADP test is satisfied. By using this bottomup leveling technique, the employer can pass the ADP test by contributing small amounts of money to NHCEs who have very low compensation for the plan year (for example, an employee who terminated employment in early January with $300 of compensation). This is because of the fact that the ADP test is based on an unweighted average of ADRs and a small dollar (but high percentage of compensation) contribution to a terminated or other partialyear employee has a larger impact on the ADP test than a more significant contribution to a fullyear employee.
The IRS and Treasury have been concerned that, by using these types of techniques, employers may pass the ADP test by making high percentage QNECs to a small number of employees with low compensation rather than providing contributions to a broader group of NHCEs. In addition, the legislative history to EGTRRA expresses Congressional intent that the Secretary of the Treasury will use his existing authority to address situations where qualified nonelective contributions are targeted to certain participants with lower compensation in order to increase the ADP of the NHCEs. (See EGTRRA Conference Report, H.R. Conf. Rep. 10784, 240).
Accordingly, the proposed regulations would add a new requirement that a QNEC must satisfy in order to be taken into account under the ADP test. This requirement, designed to limit the use of targeted QNECs, would generally treat a plan as providing impermissibly targeted QNECs if less than half of all NHCEs are receiving QNECs and would also treat a QNEC as impermissibly targeted if the contribution is more than double the QNECs other nonhighly compensated employees are receiving, when expressed as a percentage of compensation. However, QNECs that do not exceed 5% of compensation are never treated as targeted and would always satisfy the new requirement.
This restriction on targeting QNECs would be implemented in the
proposed regulations by providing that a QNEC that exceeds 5% of
compensation could be taken into account for the ADP test only to the
extent the contribution, when expressed as a percentage of
compensation, does not exceed two times the plan's representative
contribution rate. The plan's representative contribution rate would be
defined as the lowest contribution rate among a group of NHCEs that is
half of all the eligible NHCEs under the arrangement (or the lowest
contribution rate among all eligible NHCEs under the arrangement who
are employed on the last day of the year, if greater). For purposes of
determining an NHCE's contribution rate, the employee's qualified nonelective contributions and
the qualified matching contributions taken into account under the ADP test for the plan year are added together and the sum is divided by the employee's compensation for the same period. The proposed regulations under section 401(m) would provide parallel restrictions on QNECs taken into account in ACP testing, and a QNEC cannot be taken into account under both the ADP and ACP test (including for purposes of determining the representative contribution rate). As discussed more fully below, the proposed regulations would also have a limitation on targeting matching contributions, which would limit the extent to which QMACs can be targeted as a means of avoiding the restrictions on targeted QNECs.
The proposed regulations would also implement a prohibition against double counting of QNECs that was set forth in Notice 981. Generally, QNECs used in an ADP or ACP test, used to satisfy the safe harbor under section 401(k), or under a SIMPLE 401(k) plan can not be used again to demonstrate compliance with another test under section 401(k)(3) or 401(m)(2). For example, double counting could arise when QNECs on behalf of NHCEs are used to determine the ADP under current year testing in year 1 and then, if the employer elected prior year testing, are used again in year 2 to determine the ADP of NHCEs. However, unlike Notice 981, these proposed regulations would not contain the additional limitations on double counting elective contributions or matching contributions that were moved between the ADP and ACP tests. D. Correction
Section 401(k)(8)(C), as amended by the SBJPA, provides that, for purposes of correcting a plan's failure to meet the nondiscrimination requirements of section 401(k)(3), distribution of excess contributions is made on the basis of the amount of the contributions by, or on behalf of, each HCE. The proposed regulations would implement this correction procedure in the same manner as set forth in Notice 972. Thus, the total amount of excess contributions is determined using the rules under the existing final regulations (i.e., based on high percentages). Then that total amount is apportioned among the HCEs by assigning the excess to be distributed first to those HCEs who have the greatest dollar amount of contributions taken into account under the ADP test (as opposed to the highest deferral percentage). If these amounts are distributed or recharacterized in accordance with these regulations, the plan complies with the ADP test for the plan year with no obligation to recalculate the ADP test.
The proposed regulations would provide a special rule for correcting through distribution of excess contributions in the case of an HCE who participates in multiple plans with CODAs. In that case, the proposed regulations would provide that, for purposes of determining which HCE will be apportioned a share of the total excess contributions to be distributed from a plan, all contributions in CODAs in which such an HCE participates are aggregated and the HCE with the highest dollar amount of contributions will apportioned excess contributions first. However, only actual contributions under the plan undergoing correctionrather than all contributions taken into account in calculating the employee's ADRmay be distributed from a plan. If the high dollar HCE's actual contributions under the plan are insufficient to allow full correction, then the HCE with the next highest dollar amount of contributions is apportioned the remaining excess contributions. If additional correction is needed, this process is repeated until the excess contributions are completely apportioned. This correction mechanism is applied independently to each CODA in which the HCE participates. If correction is needed in more than one CODA, the ADRs of HCEs who have received corrective distributions under the other arrangements are not recalculated after correction in the first plan.
The proposed regulations would generally follow the rules in the existing regulations on the determination of net income attributable to excess contributions. The existing regulations provide for a reasonable determination of net income attributable to an excess contribution, but do not specify which contribution within the plan year is to be treated as the excess contribution to be distributed. This provision would be retained in the proposed regulations along with the existing alternative method of determining the net income, which approximates the result that would apply if the excess contribution is made on the first day of the plan year. However, to the extent the employee is or will be credited with allocable gain or loss on those excess contributions for the period after the end of the plan year (the gap period), the proposed regulations would now require that income be determined for that period. As under the existing regulations, the determination of the income for the gap period could be based on the income determined using the alternative method for the aggregate of the plan year and the gap period or using 10% of the income for the plan year (determined under the alternative method) for each month in the gap period.
The proposed regulations would permit the recharacterization of excess contributions in a manner that generally follows the existing regulations. However, the year the employee must include the recharacterized contribution in current income has been changed to match the year that the employee would have had to include the excess contribution in income, had it been distributed. Thus, if the recharacterized amount is less than $100, it is included in gross income in the year that it is recharacterized, rather than the year of the earliest elective contributions for the employee.
The proposed regulations would retain the rules in the existing regulations regarding the timing and tax treatment of distributions of excess contributions, coordination with the distribution of excess deferrals and the treatment of matches attributable to excess contributions.
E. Special Rules Relating to Prior Year Testing
The proposed regulations would generally follow the rules set forth in Notice 981 regarding prior year testing, including the limitations on switching from current year testing to prior year testing. However, the proposed regulations would provide that a plan is permitted to be inconsistent between the choice of current year testing method and prior year testing method, as applied for ADP purposes and ACP purposes. In such a case, any movement of elective contributions or QMACs between the ADP and ACP tests (including recharacterization) would be prohibited.
The proposed regulations would generally incorporate the rules set
forth in Notice 981 relating to plan coverage changes in the case of a
plan using prior year testing. Thus, in the case of a plan that uses
prior year testing and experiences a plan coverage change affecting
more than 10% of the NHCEs, the ADP of the NHCEs would generally be
determined as the weighted average of the ADP of the NHCEs of the plans
in which the NHCEs participated in the prior year. The definition of
plan coverage change includes changes in the group of eligible
employees under a plan resulting from the establishment or amendment of
a plan, a plan merger or spinoff or a change in the way plans are
combined or separated under the section 410(b) rules. The definition under the proposed regulations would
also include a reclassification of a substantial group of employees that has the same effect as amending the plan. These proposed regulations retain the rule that a plan that experiences coverage changes affecting 10% or less of the NHCEs disregards those changes in calculating the ADP for the NHCEs. Similarly, a plan that merely experiences a spinoff is not required to recalculate the ADP for the NHCEs.
5. Safe Harbor Section 401(k) Plans
Section 401(k)(12) provides a designbased safe harbor method under which a CODA is treated as satisfying the ADP test if the arrangement meets certain contribution and notice requirements. Section 1.401(k)3 of these proposed regulations, which sets forth the requirements for these arrangements, generally follows the rules set forth in Notice 98 52 and Notice 20003. Thus, a plan satisfies the section 401(k) safe harbor if it makes specified QMACs for all eligible NHCEs. The matching contributions can be under a basic matching formula that provides for QMACs equal to 100% of the first 3% of elective contributions and 50% of the next 2% or an enhanced matching formula that is at least as generous in the aggregate, provided the rate of matching contributions 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 QNECs equal to 3% of compensation for all eligible NHCEs. In addition, notice must be provided to each eligible employee, within a reasonable time before the beginning of the year, of their right to defer under the plan.
A plan using the safe harbor method must also comply with certain other requirements. Among these is the requirement in section 401(k)(12)(B)(ii) that provides that the rate of matching contribution for any elective contribution on the part of any HCE cannot exceed the rate of matching contribution that would apply to any NHCE with the same rate of elective contribution. Notice 9852 advised that the general rules on aggregating contributions for HCEs eligible under more than one CODA would apply for this purpose. The IRS and Treasury have determined that such aggregation is not applicable under the ADP safe harbor. Accordingly, these proposed regulations would not require that elective or matching contributions on behalf of an HCE who is eligible to participate in more than one plan of the same employer be aggregated for purposes of the requirement of section 401(k)(12)(B)(ii). Thus, the rate of match for purposes of determining whether an HCE has a higher matching rate is based only on matching contributions with respect to elective contributions under the safe harbor plan. However, for an employer that uses the safe harbor method of satisfying the ACP test, the rule in Notice 9852 is retained for applying the ACP safe harbor, with an exception for nonsimultaneous participation (as discussed in connection with the ACP safe harbor below).
These proposed regulations do not provide any rules relating to suspension of employee contributions under a plan that provides that safe harbor matching contributions are made with respect to the sum of elective contributions and employee contributions. Although Notice 20003 specifically permitted suspension of employee contributions in certain circumstances, the IRS and Treasury have determined that there are no limits on suspending employee contributions, provided that safe harbor matching contributions are made with respect to elective contributions. This is because the restrictions on suspension of elective contributions are sufficient to ensure an eligible NHCE can get the full matching contribution.
The proposed regulations do not include any exception to the requirements for safe harbor matching contributions with respect to catchup contributions. Treasury and the IRS are aware that there are questions concerning the extent to which catch up contributions are required to be matched under a plan that provides for safe harbor matching contributions. Treasury and the IRS are interested in comments on the specific circumstances under which elective contributions by a NHCE to a safe harbor plan would be less than the amount required to be matched, e.g., less than 5% of safe harbor compensation, but would be treated by the plan as catchup contributions, and on the extent to which a safe harbor plan should be required to match catchup contributions under such circumstances.
Section 401(k)(12)(D) contains a requirement that each eligible employee be provided with a notice of the employee's rights and obligations under the plan. These proposed regulations do not address the extent to which the notice can be provided through electronic media. As noted in the preamble to other regulations, the IRS and the Treasury Department are considering the extent to which the notice described in section 401(k)(12)(D), as well as other notices under the various Internal Revenue Code requirements relating to qualified retirement plans, can be provided electronically, taking into account the effect of the Electronic Signatures in Global and National Commerce Act (ESIGN), Public Law 106229 (114 Stat. 464 (2000)). The IRS and the Treasury Department anticipate issuing proposed regulations regarding these issues, and invite comments on these issues. Until those proposed regulations are issued, plan administrators and employers may continue to rely on the interim guidance in Q&A7 of Notice 20003 on use of electronic media to satisfy the notice requirement in section 401(k)(12)(D).
These proposed regulations would clarify that a section 401(k) safe harbor plan must generally be adopted before the beginning of the plan year and be maintained throughout a full 12month plan year. This requirement is consistent with the notion that the statute specifies a certain contribution level for nonhighly compensated employees in order to be deemed to pass the nondiscrimination requirements. If the contribution level is not maintained for a full 12month year, the employer contributions made on behalf of nonhighly compensated employees should not support what could be a full year's contribution by the highly compensated employees.
The proposed regulations would adopt the exception to the requirement that a section 401(k) safe harbor plan be in place before the beginning of the plan year that was provided in Notice 20003. Under that option, an employer could adopt a section 401(k) safe harbor plan which has contingent nonelective contributions, provided the employer notifies employees of this contingent arrangement before the start of the year, amends the plan to provide the nonelective contributions no less than 30 days before the end of the year, and provides employees with a followup notice if the contribution will be made. Similarly, the proposed regulations would adopt the exception for a section 401(k) safe harbor plan that uses the matching contribution alternative. Under that exception, an employer can amend the plan to eliminate matching contributions with respect to future elective deferrals, provided that the matching contributions are made with respect to preamendment elective defer
FOR FURTHER INFORMATION CONTACT
Concerning the regulations, R. Lisa MojiriAzad or John T. Ricotta at (202) 6226060 (not a tollfree number); concerning submissions and the hearing, and/or to be placed on the building access list to attend the hearing, Lanita Van Dyke, (202) 6227180 (not a tollfree number).