XX. Safe Harbor 401(k) (including QACA)

Statement of Requirement: Code §§ 401(k)(12), 401(k)(13), 401(m)(11) and 401(m)(12); Reg. §§ 1.401(k)-3 and 1.401(m)-3; Notice 2016-16, 2016-7 I.R.B. 318

(Note to reviewer: CODA LRM XX is required only in a plan offering the design-based safe harbor methods for satisfying the ADP test or the ADP and ACP tests (a "Safe Harbor CODA"). A plan that satisfies the ADP/ACP test safe harbors must satisfy all the other applicable requirements of the Code (other than § 416 in the case of certain Safe Harbor CODAs), including the other requirements of § 401(k), the nondiscriminatory availability of benefits, rights, and features under § 401(a)(4), and the limitations of §§ 401(a)(17), 401(a)(30), and 415. A plan that consists solely of a Safe Harbor CODA and Matching Contributions that satisfy the ACP Test Safe Harbor is not subject to the top-heavy requirements of § 416, provided that Matching Contributions under the Plan are allocated to all employees eligible to make Elective Deferrals.

The ADP test safe harbor requires that a plan meet certain contribution requirements (matching or nonelective) and, for plans making safe harbor matching contributions, a notice requirement. The ACP test safe harbor requires that a plan meet the contribution and notice requirements of the ADP test safe harbor and, in addition, satisfy a special limit on Matching Contributions.

A plan providing for Employee Contributions, or Matching Contributions that fail to satisfy the ACP test safe harbor, must satisfy the regular ACP test under § 401(m)(2). See Reg. §§ 1.401(m)-2(a)(5)(iv) and 1.401(m)-3 for details.

A Safe Harbor CODA that includes a Qualified Automatic Contribution Arrangement (a “QACA”) must meet the requirements of Code § 401(k)(13). See Reg. § 1.401(k)-3(j) and (k). Matching contributions made under a plan with a QACA feature must meet the requirements of Code § 401(m)(12). See Reg. § 1.401(m)-3.)

(Note to reviewer: The provisions in CODA LRM XX are for plans intending to satisfy the Safe Harbor CODA requirements of §§ 401(k)(12) and 401(m)(11), or the QACA provisions of §§ 401(k)(13) and 401(m)(12). A plan that includes a QACA must contain plan provisions that comply with these Code sections and the relevant portions of Reg. §§ 1.401(k)-3 and 1.401(m)-3. CODA LRM XX may be used in place of those portions of the CODA LRMs that are not applicable when the Plan is using the safe harbors to satisfy the ADP and ACP tests. For example, CODA LRMs VI, VII, VIII, IX, X, XI, XII, XIII, XIV,

44 | Cash or Deferred Arrangement (CODA) LRM Package 01-2024

XV, and XIX can be omitted in their entirety if only safe harbor contributions can be made under the Plan.

A Safe Harbor CODA must satisfy the requirements of CODA LRMs I, II, III, IV, V, XVI (only for Elective Deferrals and only for the enumerated distributable events permitted under the Plan), XVII (if the Plan permits hardship distributions) and XVIII. However, if pursuant to Reg. § 1.401(k)-3(f) the Plan provides an option whereby the Plan can be amended by the Employer during a Plan Year to become a Safe Harbor CODA for that Plan Year using Safe Harbor Nonelective Contributions, the Plan must contain the CODA LRMs appropriate for a CODA that is not using the safe harbors, as well as this CODA LRM XX, both as modified to meet the requirements of such Regulations, each applicable to that respective portion of the Plan Year. See Section 103 of the SECURE Act. Also, if pursuant to Reg. §§ 1.401(k)-3(g) and 1.401(m)-3(h) the Plan provides an option whereby a Safe Harbor CODA can be amended by the Employer during a Plan Year to prospectively eliminate the Safe Harbor Matching or Nonelective Contributions and become a regular CODA using the current year ADP/ACP testing method for the entire Plan Year, then the Plan must contain the CODA LRMs appropriate for a CODA that is not using the safe harbors, as well as this CODA LRM XX, both as modified to meet the requirements of such Regulations, each applicable to that respective portion of the Plan Year.)

(Note to reviewer: If a safe harbor § 401(k) plan replaces a terminated SIMPLE IRA mid- year, the total amount that may be contributed as salary reduction contributions under the terminated SIMPLE IRA plan and as elective contributions under this safe harbor § 401(k) plan may not exceed the weighted average of the salary reduction contribution and elective contribution limits for each of those plans (weighted by the number of days in the transition year each plan was in effect). See Q&A G-7 of Notice 2024-2. Plan terms must so limit elective contributions into the safe harbor § 401(k) plan. See CODA LRM IV for the appropriate limiting plan terms.)

Sample Plan Language:

Article [ ] Safe Harbor CODA