IRS Notice Addresses 401(k)/403(b) Safe Harbor SECURE Act Provisions

The IRS has issued Notice 2020-86, providing guidance for implementing provisions of the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. Specifically, the SECURE Act provisions addressed deal with features and procedures of 401(k) and 403(b) plans that incorporate safe harbor designs for satisfying nondiscrimination testing requirements, and automatic enrollment and automatically increased deferral rates.

In general, provisions of the SECURE Act increased from 10 percent to 15 percent the maximum automatically-increased elective deferral rate for automatic-enrollment safe harbor plans, eliminated certain safe harbor notice requirements for plans making safe harbor nonelective contributions, and added provisions for retroactive adoption of a safe harbor design.

Notice 2020-86 provides guidance in question-and-answer format and includes the following issues.

  • Voluntary nature of the SECURE Act’s higher maximum automatic-increase deferral rate
  • Amending for the SECURE Act’s enhanced safe harbor design and adoption provisions
  • Elimination of certain safe harbor notice requirements for plans that meet specified nonelective contribution requirements
  • Interaction between delayed safe harbor design adoption and employer notice of possible contribution suspension
  • Safe harbor status of plans that suspend and subsequently resume safe harbor contributions
  • Deductibility of prior-year contributions under late-adopted safe harbor provisions