Updated with clarification
While scores of retirement plan sponsors — among them Amtrak, Marriott International Inc. and Macy's Inc. — have suspended or delayed employer contributions to minimize the financial wreckage from the coronavirus, it isn't an easy decision or even an easy process, particularly for sponsors of safe harbor plans.
"I don't think any employer is relishing the need to cut back on their employer contributions," said Joy M. Napier-Joyce, an attorney with Jackson Lewis PC in Baltimore. "Given the financial pressures that a lot of them are under right now, they're finding it fiscally prudent to stop any outlay of cash that can be prevented in order to cover other costs like payroll."
For sponsors of safe harbor plans, especially, the decision is doubly complex. Sponsors of such plans are required to give participants 30 days' notice — unlike most other plans, which can suspend contributions immediately.
Giving the required notice not only stymies how quickly safe harbor sponsors can act to cut costs but may be difficult in an environment where human resources departments and businesses aren't functioning normally.
In addition, they must consider the challenge of non-discrimination testing, which they would now need to do if they were to stop contributions and lose their status as a safe harbor plan. One of the big attractions of using a safe harbor plan design is that it avoids non-discrimination testing.
"There are more questions I think from the safe harbor sponsors to understand what the ramifications are," Ms. Napier-Joyce said, referring to suspensions of employer contributions.