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Employers with safe harbor 401(k) plans who want to suspend or reduce their safe harbor contributions during a year could previously only do so if they had a safe harbor match. If they had a safe harbor non-elective contribution (generally 3% of compensation), the only way to suspend or reduce the contribution was to terminate the plan.
The IRS has issued a proposed regulation that allows employers with safe harbor non-elective contributions to suspend or reduce their contribution without terminating their plan. Here is a link to a 2 page summary by the IRS of the current and new rules. http://www.irs.gov/pub/irs-tege/se0509.pdf It is well done and should answer most questions.
The most unique thing about this announcement is the compensation limit under 401(a)(17) ($245,000 for 2009) must be prorated up to the effective date of the amendment to suspend.
This is effective for amendments adopted after 5/18/09. Plans can rely on them now even though they are proposed. If the final regulations are more restrictive, they will not be applied retroactively.
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