IRS Proposes Safe Harbor for Employers That Suspend 401(k) Match

The Internal Revenue Service has proposed new rules that would grant safe harbor for employers experiencing substantial business hardship that want to suspend or reduce their 401(k) matches.

The rules would relieve employers from having to run an IRS nondiscrimination test to assure that higher paid employees are not contributing more to their 401(k) plan than others, by a legally set amount. That would permit higher-paid employees age 49 or younger to continue to contribute up to $16,500 a year and those 50 or older $22,000.

Consultants say having to change the rules for higher-paid employees would cause sponsors to return money, is administratively difficult and, basically, is bad employee communications.

The IRS said the goal is to discourage employers from eliminating their 401(k) plan altogether.