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IRS Provides Guidance on Safe Harbor Plans

AAFCPAs would like to make clients aware that the Internal Revenue Service (IRS) recently issued Notice 2020-86 addressing certain provisions of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) affecting safe harbor plans, including safe harbor 401(k) plans and certain 403(b) plans.

A safe harbor 401(k) plan is similar to a traditional 401(k) plan but is structured in a way that certain compliance testing can be avoided. Among other things, a safe harbor 401(k) plan must provide for employer contributions that are fully vested when made. These contributions may be employer matching contributions, limited to employees who defer, or employer contributions made on behalf of all eligible employees, regardless of whether they make elective deferrals.

In Notice 2020-86, the IRS answers FAQs to assist small businesses and other employers that maintain safe harbor plans in compliance with the SECURE Act.

The SECURE Act generally increases from 10% to 15% the maximum automatic elective deferral under an automatic enrollment safe harbor plan. It also eliminates certain safe harbor notice requirements for plans that provide safe harbor nonelective contributions and adds new provisions for the retroactive adoption of safe harbor status for those plans.

The notice provides initial guidance on these provisions of the SECURE Act and impacts certain safe harbor 401(k) and 401(m) plans (including 403(b) plans that apply the 401(m) safe harbor).

Notice 2020-86 is intended to assist taxpayers by providing guidance on particular issues while the Treasury Department and the IRS develop regulations to fully implement these provisions of the SECURE Act.

If you have any questions, please contact: Davide Villani, CPA, CGMA at 774.512.4012, dvillani@nullaafcpa.com; or your AAFCPAs Partner.

About the Author

Davide Villani CPA
Davide has been serving AAF clients since 2002, providing assurance and tax solutions for sophisticated, privately-held companies, including: manufacturing, distribution, green tech & clean tech. He has extensive experience leading high-energy teams to provide efficiency and deliver an overall positive, and non-intrusive audit experience. Davide provides detailed reports about audit findings and communicates business-critical information to management, which adds meaning to the audit process and positively impacts decision making. Davide is a leader of AAF’s Employee Benefit Plan Audit practice and specializes in ERISA audits, including: 401K, 403B, Defined Benefit, and Health & Welfare Plans.