‘Securing’ Your Safe-Harbor Plan: IRS Provides Guidance on SECURE Act Changes Affecting Safe-Harbor Plans

January 11, 2021

Notice 2020-86 (Notice) from the Internal Revenue Service (IRS) provides guidance to help interpret and apply certain Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) provisions that impact so-called “safe-harbor plans.” Written in Q&A style, the Notice addresses and clarifies a number of interpretative questions that arose following the enactment of the SECURE Act.

While the Notice mainly confirms widely held understandings of the SECURE Act changes, the Notice also highlights how certain provisions of the SECURE Act (particularly the elimination of certain safe-harbor notice requirements) are complicated to apply and may not provide as much relief as originally anticipated. A brief overview of the main points covered by the Notice is below.

Safe-Harbor 401(k) Plans

Before jumping into the Notice provisions, it's helpful to summarize a few key points about safe-harbor plans. In general, a 401(k) plan must not provide contributions or benefits that discriminate in favor of highly compensated employees. To satisfy these nondiscrimination rules, 401(k) plans must satisfy certain mathematical percentage tests to confirm that elective deferrals and matching contributions made under the plan do not disproportionately benefit highly compensated employees (the so-called “ADP Test” and “ACP Test”). However, 401(k) plans that provide certain minimum levels of contributions to participants and also satisfy certain other procedural requirements are treated as “safe-harbor” plans that are deemed to satisfy one or both of these tests.

Changes Under the SECURE Act

The SECURE Act made several changes to safe-harbor plan requirements as follows:

  • Increasing the default maximum automatic contribution rate for “qualified automatic contribution arrangement” (QACA) safe-harbor 401(k) plans from 10% to 15%
  • Eliminating certain notice requirements for safe-harbor plans that use a non-elective contribution to satisfy the ADP Test safe-harbor
  • Permitting the retroactive adoption of a safe-harbor plan that uses non-elective contributions to satisfy the safe-harbor requirements

Notice Clarifies and Confirms Certain SECURE Act Provisions

The Notice provides more detail and clarification on some of the SECURE Act's safe-harbor plan provisions as follows:

  • Increase of QACA Safe-Harbor Rate Cap from 10% to 15%. In addition to making certain minimum level of contributions to participants, QACA safe-harbor plans satisfy the safe-harbor requirements by automatically enrolling participants at a contribution percentage of no less than 3% and thereafter automatically increasing contributions in 1% increments up to no less than 6% and no more than 10%. The SECURE Act increased the maximum automatic increase rate cap from 10% to 15%.
  • IRS Notice Amplification/Clarification – Not unexpectedly, the Notice confirms that the new 15% cap is not a required change for QACA safe-harbor plans and plan sponsors are free to adopt or not adopt the increase. Helpfully, the Notice also cautions plan sponsors against inadvertent operational errors that potentially could result from plan language that incorporates the rate cap by reference (for example, a plan that cross-references the Internal Revenue Code section containing the rate cap and does not specify the actual percentage). To avoid these inadvertent failures, the IRS recommended that plan sponsors review their plan documents and, if necessary, adopt a plan amendment (no later than the SECURE Act amendment deadline, which is the end of 2022 for most plans) to ensure that the rate cap increase to 15% is appropriately adopted (or not) as desired.


  • Elimination of Certain Safe-Harbor Notice Requirements. Before the SECURE Act, a safe-harbor plan that satisfied the safe-harbor minimum contribution requirement through a 3% (or larger) non-elective contribution was required to provide a safe-harbor notice to participants before the beginning of each plan year (or within a reasonable period of time before an employee becomes eligible to participate in the plan). The SECURE Act eliminated this advance notice requirement in certain circumstances.
  • IRS Notice Amplification/Clarification – The Notice highlights the complexity of applying these SECURE Act provisions and illustrates how the relief may not be as broad as originally anticipated. Specifically, the Notice indicates that the advance safe-harbor notice is eliminated only for plans that are QACAs or that intend to rely on the non-elective contribution safe-harbor to satisfy only the ADP Test. This means that plans that provide non-safe harbor matching contributions and intend to rely on the non-elective contribution safe-harbor to satisfy the ACP Test for those matching contributions must still provide the safe-harbor notice. In addition, the Notice indicates that the SECURE Act does not eliminate other notice obligations that may apply (for example, “eligible automatic contribution arrangements” that must provide advance notice to employees of their ability to opt out of a plan's automatic enrollment feature). Lastly, the Notice indicates that advance notice must still be provided if a plan wants to preserve the ability to reduce or eliminate a safe-harbor contribution feature during the middle of a plan year. As to this last point, the Notice provides relief to plan sponsors who (perhaps thinking that the SECURE Act notice elimination provisions applied more broadly) may not have distributed advance notices for the 2021 plan year. Pursuant to this relief, plan sponsors can distribute notices for 2021 as late as January 31, 2021 for calendar year plans.


  • Retroactive Addition of Non-Elective Contribution Safe-Harbors. The SECURE Act provides that an employer may adopt a 3% non-elective contribution safe-harbor retroactively if the amendment is adopted 30 days before the end of the plan year (or, if the non-elective contribution is 4% or more, if it is adopted by the end of the following plan year).

IRS Notice Amplification/Clarification – The Notice explains how this retroactive amendment feature may apply in certain circumstances and how certain safe-harbor requirements (for example, advance notice requirements) may be impacted. Consistent with the discussion above, the Notice confirms that a plan sponsor can retroactively add a safe-harbor non-elective contribution to satisfy the ADP Test or so that an automatic enrollment plan can be a QACA, but that this retroactive amendment approach would not otherwise work to satisfy the ACP Test, unless the plan sponsor had already taken steps to satisfy the annual notice requirement. Helpfully, the Notice confirmed that the retroactive amendment rules could be used not only to add a new safe-harbor retroactively, but also to reinstate a safe-harbor (if, for example, the employer suspended safe-harbor contributions earlier in the year and then is able to reinstate them later). Regarding the deductibility of safe-harbor contributions, the Notice confirms that safe-harbor contributions are only deductible for the prior year if made by the tax return deadline (with extensions) for such prior year.

The Notice provides helpful information and clarifications regarding certain safe-harbor plan provisions in the SECURE Act. However, the Notice also illustrates the practical issues and complexities of applying certain of the SECURE Act's safe-harbor provisions. Perhaps recognizing that some of these technical issues and complexities may require additional consideration or guidance, the IRS invited comments on the Notice and SECURE Act changes that the IRS can use, in its words, to develop regulations to fully implement these sections of the SECURE Act.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Lisa Barton

Marla Kreindler
Dan Salemi
Julie Stapel

New York
Craig Bitman

Bob Abramowitz
Amy Kelly
Mark Simons
William Marx
Gena Yoo

John Ferreira
Matt Hawes
Randall C. McGeorge
R. Randall Tracht

Washington, DC
Rosina Barker
Althea Day
Greg Needles
Michael Richman
Jonathan Zimmerman