Pension Protection Act Blog

Last week, the IRS released Announcement 2007-59. It permits safe harbor 401(k) plans to add hardship withdrawals and to implement a qualified Roth program mid-year, even if they were not mentioned in the safe harbor notice distributed to participants.

Announcement 2007-59 is important because it clarifies an issue created by the Final 401(k) regulations which had created a dilemma for sponsoring employers of safe harbor 401(k) plans. If they timely distribute a safe harbor notice by December 1st for the upcoming plan year, are they prohibited from amending the plan in a manner that is inconsistent with the information in the safe harbor notice? For adding hardship distributions and Roth provisions, the IRS has announced that such an amendment is not prohibited. Plans can be amended to include these two provisions even if they are not mentioned in the safe harbor notice.

Announcement 2007-59 does not address whether the sponsoring employer is then required to distribute a new safe harbor notice reflecting the mid-year change once the plan has been amended to include hardship distributions and/or Roth provisions. A reasonable interpretation of Announcement 2007-59 could be that a new safe harbor notice is not required because the participants will be receiving a Summary of Material Modifications reflecting the changes.

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