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Final Regulations Regarding Midyear Reduction or Suspension of Contributions

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Information about Final Regulations Regarding Midyear Reduction or Suspension of...
Business & Mgmt

Published on February 18, 2014

Author: OConnorDavies

Source: slideshare.net

Description

The Internal Revenue Service (“IRS”) final regulations issued in November 2013 modify the rules for midyear reduction or suspension of safe harbor contributions. These regulations provide certainty and consistency for the application of the safe harbor non-elective and matching contribution plans. O'Connor Davies CPAs, NY CPA Firm.
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January 2014 Employee Benefit Plans Considerations Safe Harbor Plans: Final Regulations Regarding Midyear Reduction or Suspension of Contributions Louis F. LiBrandi, Principal and Matthew J. Corona, Senior Manager The Internal Revenue Service (“IRS”) final regulations issued in November 2013 modify the rules for midyear reduction or suspension of safe harbor contributions. These regulations provide certainty and consistency for the application of the safe harbor non-elective and matching contribution plans. Safe Harbor Plan Louis F. LiBrandi Principal llibrandi@odpkf.com 212.286.2600 A safe harbor plan is a design-based alternative that satisfies the ADP and ACP nondiscrimination requirements by meeting certain statutory design requirements, including providing either a safe harbor matching or non-elective contribution for a full 12-month plan year. The benefit of following the safe harbor rules was that plan sponsors were allowed to avoid certain non-discrimination tests, which can be complex and often result in limiting the contributions for highly compensated employees. Under the prior regulations, a plan sponsor had to have a “substantial business hardship” in order to reduce or cease making safe harbor non-elective contributions at the mid-year point of a plan year. However, it was not clear as to how “substantial business hardship” was defined and made businesses reluctant to adopt the rule. In addition, safe harbor matching contributions could be reduced or suspended at the mid-year point provided that a plan sponsor gave 30 days advance notice of their intention to their employees. Matthew J. Corona Senior Manager mcorona@odpkf.com 914.381.8900 The final regulations, permit plan sponsors to reduce or suspend their safe harbor non-elective and matching contributions at the mid-year point provided they meet one of the following requirements: (1) the plan sponsor is operating at an “economic loss”, or (2) the plan sponsor provides sufficient information in its notice to participants that the plan sponsor might not make their contributions. There are several other requirements which can require further processing and evaluation before the safe harbor contribution is suspended or reduced. This would include the adoption of an amendment for a plan and the satisfaction of the timing and contents of the notice of the amendment to participants, completing the ADP and ACP testing requirement for the entire year utilizing the current-year testing method, and the adjustments which may be needed to satisfy the compensation limit of Code §401(a)(31) and the top heavy requirements of Code § 416.

Contact: New York, NY 212.286.2600 212.867.8000 Harrison, NY 914.381.8900 Effective Date The revised regulations regarding the safe harbor matching contributions become effective for plans with a plan year beginning on or after January 1, 2015 because the applicable changes are more restrictive than current rules. If you would like more information or have any questions, please contact Louis F. LiBrandi at (212) 286-2600; llibrandi@odpkf.com About O’Connor Davies Stamford, CT 203.323.2400 Paramus, NJ 201.712.9800 Cranford, NJ 908.272.6200 O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long history of serving clients both domestically and internationally and providing specialized professional services of the highest quality. With roots tracing to 1891, seven offices located in New York, New Jersey and Connecticut, and approximately 400 professionals including 70 partners, the Firm provides a complete range of accounting, auditing, tax and management advisory services. O’Connor Davies is ranked as number 36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also within the 20 largest accounting firms in the New York Metropolitan area according to Crain's New York Business and the Westchester and Fairfield County Business Journals. New Windsor, NY 845.220.2400 O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Wethersfield, CT 860.257.1870 IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence (including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid any penalties imposed under the Internal Revenue Code, or (ii) to promote, market, or recommend to another party any transaction or matter addressed herein.

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