Like it or not, the IRS takes a very restrictive position on the acceptability of mid-plan year amendments to “safe harbor” 401(k) plans. This restrictive position is likely intended to prevent plan sponsors of safe harbor 401(k) plans from implementing otherwise permissible mid-plan year changes to the plan provisions communicated to a participant within the mandatory annual notice required of a safe harbor 401(k) plan. Presumably, the IRS is concerned that such a change could allow plan sponsors to unfavorably revise plan provisions which may have been the basis for the deferral elections made by its participants. Originally, the legal basis for the IRS position on this issue was based exclusively on its interpretation of the application of the annual participant notice and 12 month plan year requirements set forth under the Treasury regulations with respect to safe harbor 401(k) plans. However, as time has gone on, the IRS has supplemented its arguably overzealous interpretation of those original regulations with additional guidance to further define and establish its position.

Effective June 2, 2014, the Internal Revenue Service (“IRS”) established a new temporary “pilot” program which provides penalty relief to plan sponsors and plan administrators of certain retirement plans. More specifically, the relief applies to the late-filing of Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan (“Form 5500-EZ”), or, in limited circumstances, Form 5500, Annual Return / Report of Employee Benefit Plan (“Form 5500”), with regard to plans which are not subject to Title I of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). Due to the new program’s availability only to non-ERISA plans, this relief is generally limited to plans sponsored by certain small businesses (owner-only or business partnerships) or certain foreign plans. The following discusses the new guidance in greater detail.