More HH Legal Updates

Houston Harbaugh is a full service law firm headquartered in Pittsburgh and serving Pennsylvania, West Virginia and Ohio. This collection of blogs further highlights the firms capabilities in several practice areas.

New IRS Rules Permit Suspension Of Safe Harbor Retirement Plan Contributions

Since the spread of the coronavirus began to curtail business operations in March, many employers have been looking for ways to reduce their operating expenses. Among those options considered most frequently has been a suspension or reduction in employer contributions to retirement plans. For those employers that maintain “safe harbor” 401(k) or 403(b) plans, however, the matter was not as easy as simply adopting a plan amendment. In fact, many employers discovered that existing IRS rules made it difficult, if not impossible, to change their plans prior to the beginning of the next plan year (e.g., January 1, 2021). Recognizing the situation in which these employers find themselves, the IRS issued Notice 2020-52 on June 29, 2020. The new guidance provides specific COVID-19 relief by expanding the circumstances under which safe harbor contributions can be suspended or reduced, with a special amendment deadline of August 31, 2020.


401(k) plans are generally subject to nondiscrimination tests (the ADP and ACP Tests) which limit the contributions made by or on behalf of “Highly Compensated Employees,” compared to those made by or on behalf of “Non-Highly Compensated Employees.” However, if the employer agrees to make “safe harbor” contributions to the plan, the plan is exempt from the nondiscrimination tests. Safe harbor contributions take one of two forms: (a) “nonelective” contributions equal to 3% of compensation and made on behalf of all eligible employees, or (b) “matching” contributions determined under one of several available formulas and made only on behalf of those participants who make employee contributions to the plan.

Under IRS rules, plan provisions for safe harbor contributions are generally required to be in effect prior to the beginning of the plan year and are required to remain in effect throughout the plan year. Historically, safe harbor contributions could only be suspended or reduced mid-year if (a) the employer could demonstrate that it was operating at an “economic loss, ” or (b) the employer had specifically reserved the right to suspend or reduce such contributions in the safe harbor notice provided to employees before the beginning of the year. The term “economic loss” means that the employer’s expenses are exceeding its income, and not merely that it is having a down year. Also, since no employers anticipated the effect that COVID-19 would have when they issued their safe harbor notices to employees prior to 2020, not all employers reserved the right to suspend or reduce their safe harbor contributions. In short, many employers have found themselves to be stuck making contributions they cannot afford.

The New Rules:

Notice 2020-52 now permits an employer to amend its safe harbor plan to suspend or reduce safe harbor contributions during 2020, subject to three conditions: (a) the amendment must be adopted no later than the date the amendment is effective and no later than August 31, 2020; (b) notice of the suspension or reduction must be provided to affected employees no later than 30 days prior to the effective date (for matching contributions) or by August 31, 2020 (for nonelective contributions); and (c) the plan must be subjected to the ADP and ACP (if applicable) nondiscrimination tests for the plan year, given that safe harbor status is being surrendered. Importantly, the relief is available to all safe harbor plan sponsors; an employer need not demonstrate “economic loss” or any other form of business hardship, and need not have included any particular language in its safe harbor notice to employees for 2020.

Notice 2020-52 also confirms a different option under which safe harbor contributions can be suspended or reduced for Highly Compensated Employees only, without losing the safe harbor status of the plan, but subject to notice to the affected employees. Since this confirmation is merely an interpretation of the prior safe harbor rules, it will actually continue to be available beyond 2020.

Contact us if you want to consider adopting an amendment to suspend or reduce safe harbor contributions by the August 31, 2020 deadline.

About Us

Trusted and Cost-Effective Business Law, Business Litigation and Estate Planning Attorneys and Counselors; Building Client Confidence™ with Businesses and Individuals Since 1975

Our firm offers individualized solutions and the highest quality, client-driven and cost effective legal services. Houston Harbaugh, P.C., is a well-known law firm in Pittsburgh, serving Pennsylvania, West Virginia and Ohio. Our diverse practice areas include Business Law, Business Litigation, Estate and Succession Planning, Intellectual Property Litigation and Prosecution, Employment and Labor, Employee Benefits, Oil and Gas, Landowner and Property Dispute Counseling and Litigation, Health Care, Environmental, Real Estate, Construction, Complex Tort and Catastrophic Injury Litigation, Insurance coverage and Bad Faith Law, Mediation, Arbitration and Special Master appointment work. As one of the 20 largest law firms in Pittsburgh, our lawyers serve clients on a regional and national basis.

We regularly represent regional, national and international insurance carriers in defense, insurance coverage, unfair trade practices and bad faith matters, and we issue opinions letters and coverage analyses for insurers. We defend designers, manufacturers and sellers in pharmaceutical, products and medical products liability matters and we litigate and try cases involving catastrophic injuries, industrial accidents, toxic torts, professional, engineering and architectural negligence, and agent and broker claims and lawsuits.

Why Houston Harbaugh, P.C.? The Answer Is Clear.

We are accomplished litigators with a strong track record of success in the courtroom and in jury trials. We design and manage business transactions, succession planning, banking and regulatory issues. Our firm has regularly been featured in the U.S. News “Best Lawyers”® rankings of Pittsburgh’s “Best Law Firms.” Our attorneys are also regularly nominated as “Best Lawyers” in this publication. In addition, many of our attorneys are consistently recognized in the annual national Super Lawyers peer review rankings, and our corporate practice has been selected as the winner of The Legal Intelligencer’s Best Law Firm Corporate Practices contest for the Midsize Firm category. Our property and landowner counseling and litigation practice in Oil and Gas and Real Estate is ranked at the top on a regional basis. We help clients to apply for, prosecute, audit, manage and protect intellectual property rights in patent, trademark, copyright and trade secrets. We are admitted to the USPTO and have experience in the TTAB. Some of our firm’s shareholders are Adjunct Professors of Law at the Duquesne University School of Law in litigation and intellectual property courses.

Helping You Achieve Your Goals For Over 40 Years

Since our inception as a health care practice in 1975, our attorneys have represented clients in state and federal courts in Pennsylvania, West Virginia, Ohio and throughout the nation. We have grown into a multi-disciplinary practice with the ability to handle complex business transactional and litigation matters. We counsel on estate and succession planning and on trust and guardianship matters. We have a strong employment and labor practice. We represent clients in trade secret counseling and federal Defend Trade Secret Act (DTSA) counseling and litigation. Our DTSALaw® practice group is well versed in this federal body of trade secret law. We counsel, draft, litigate and defend claims involving employment non-compete, restrictive covenants, non-disclosure agreements and breach of contract matters. We service clients in the collection of debts and in bankruptcy creditor matters. Houston Harbaugh litigates in Orphans and Probate courts for matters involving estates and trusts. We also provide mediation and arbitration services to parties involved in litigation and our lawyers are currently serving as court appointed special masters in the Federal Courts.

Contact us and Learn How We Can Help You and Your Business

For more information on how we can help you, call our Pittsburgh office at 412-281-5060. You can also reach us online.

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