SHRM Suggests Improvements to Proposed Rule on Defined Contribution Safe Harbor
On August 14, SHRM submitted a joint comment letter with the American Benefits Council (ABC) praising the IRS for its plan to relax the safe harbor non-elective contribution rules relating to 401(k)-type retirement contributions. The rules allow employers experiencing substantial business hardship to reduce or suspend contributions during a plan year.
Under current IRS rules, an employer cannot change the contribution level during a plan year. This restriction is leading some employers experiencing hardships to consider terminating their plan. In the letter to the IRS, SHRM and ABC voiced strong support for the proposed changes, but encouraged the IRS to make further improvements in its proposal.
For example, as currently written, the IRS’s definition of “substantial business hardship” represents a high bar for most employers to meet. SHRM and ABC stated in their letter that many employers facing cost constraints in today’s economic climate are finding it difficult to qualify for the safe harbor, leaving them to either terminate the plan or offset continued contributions with cost-cutting measures, including layoffs. SHRM and ABC recommend that the IRS either substantially modify the current definition or strike it altogether.
To review a copy of the comment letter, please click HERE.