Comment on FR Doc # E9-11481

July 14, 2009 Lori W. Jones 314-552-6568 FAX 314-552-7568 ljones@thompsoncoburn.com VIA ELECTRONIC & FIRST CLASS MAIL Internal Revenue Service PO Box 7604 Ben Franklin Station Washington D.C. 20044. Re: IRS REG 115699-09; Proposed Regulations for Suspension or Reduction of Contributions to Safe Harbor 401(k) Plans Dear Sir or Madam: Pursuant to the authority granted in the notice of proposed rulemaking, dated May 18, 2009, the following comments are submitted regarding the proposed regulations permitting the suspension of certain contributions to safe harbor 401(k) plans. Comment 1: Both the current and proposed versions of Regulation §1.401(m)-3(h)(1)(i) provide that a plan amendment reducing safe harbor matching contributions mid-year is permitted provided that (i) a supplemental notice meeting the requirements of Regulation §1.401(m)-3(h)(2) is provided to eligible employees, (ii) the reduction is effective no earlier than the later of 30 days after the date of the supplemental notice and the date the plan amendment is adopted, (iii) eligible employees are given a reasonable opportunity to modify their deferral elections prior to the reduction of the safe harbor matching contribution formula, (iv) the plan is amended to provide that the ADP test will be satisfied for the entire plan year in which the reduction occurs, and (v) the plan satisfies the safe harbor requirements with respect to amounts deferred through the effective date of the amendment. As you know, Regulation §1.401(k)-3(c) defines “safe harbor matching contributions” to include both matching contributions satisfying the basic matching formula and matching contributions satisfying an enhanced matching formula (i.e., a matching formula greater than the basic matching formula). Informally, the IRS has indicated that an amendment to a safe harbor 401(k) plan with an enhanced matching formula to reduce matching contributions mid-year to a level permitted under the basic matching formula will result in imposition of the ADP test even though such plan will provide greater matching contributions than a safe harbor 401 (k) plan that provided matching contributions at the basic matching formula for the entire plan year. In essence, the plan sponsor is penalized for providing an enhanced matching formula for part of the plan year. Please consider revising Regulation §1.401(m)-3(h)(1)(i) to permit a plan sponsor to amend a safe harbor 401(k) plan to reduce, mid-year, an enhanced matching formula to the basic matching formula without imposition of the ADP test, provided that (i) a supplemental notice meeting the requirements of Regulation 1.401(m)-3(h) (2) is provided to eligible employees, (ii) the reduction is effective no earlier than the later of 30 days after the date of the supplemental notice and the date the amendment is adopted, (iii) eligible employees are given a reasonable opportunity to modify their deferral elections prior to the reduction of he safe harbor matching contribution formula, and (iv) the plan satisfies the safe harbor requirements with respect to amounts deferred throughout the plan year of the amendment. Employers across the country are facing stiff economic challenges and many need to cut matching contributions to keep businesses solvent and jobs intact. Employers that might otherwise eliminate matching contributions will likely consider reducing an enhanced matching formula to a basic matching formula if the employer and the plan can avoid the additional cost of ADP testing. Plan participants will be the ultimate beneficiaries of the proposed change. From a policy standpoint, a plan sponsor should not be penalized for providing a more generous matching formula under a safe harbor 401(k) plan than is required by the basic matching formula. Imposing the ADP test if an employer reduces an enhanced matching formula to a basic matching formula creates a disincentive for employers to provide matching contributions above the basic matching formula. If participants are given sufficient advance notice of the amendment and time to adjust elective deferrals, the spirit of the safe harbor rules has been satisfied. Comment 2: Please consider making the proposed regulations effective for amendments adopted or that become effective after May 18, 2009. Some employers may have adopted amendments prior to May 18, 2009 that have an effective date after May 18, 2009. Thank you for your consideration. I hereby request a public hearing with respect to this topic. Very truly yours, Thompson Coburn LLP By Lori W. Jones