On December 9, 2020, the IRS issued Notice 2020-86 (the “Notice”). This new guidance expands on sections 102 and 103 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”), both of which apply to safe harbor plans. Those plans make legally-required employer contributions (in the form of matching contributions or nonelective contributions), and they satisfy other legal requirements, in order to pass automatically certain annual compliance tests. Some safe harbor plans include a qualified automatic contribution arrangement (“QACA”). Under a QACA, eligible employees automatically have a certain percentage of their pay withheld and remitted to the plan unless they opt out or elect a different contribution amount than the plan’s automatic amount. Those plans are subject to slightly less strict matching contribution and vesting requirements than safe harbor plans that do not include a QACA.
Section 102 of the SECURE Act increased the 10 percent cap for QACA safe harbor plans. Thus, although the minimum QACA employee contribution still equals 3 percent of eligible compensation, the SECURE Act provided that the maximum QACA employee contribution cannot exceed 15 percent of a participant’s eligible compensation (or 10 percent during the initial period of QACA contributions). Under the Notice:
Section 103 of the Secure Act eliminated the safe harbor notice requirement for plans that provide safe harbor nonelective contributions and added new provisions for the retroactive adoption of safe harbor status for those plans. In this connection, here are some highlights of the Notice:
The Notice also states that it “is not intended to provide comprehensive guidance as to §102 or 103 of the SECURE Act, but rather is intended to assist taxpayers by providing guidance on particular issues while the Treasury Department and the IRS develop regulations to fully implement these sections of the SECURE Act.”