What COVID-19 Might Mean for Employer Contributions to Your 401K Retirement

Jun 10, 2020 | Employment Law, Covid-19

It’s common during a recession for employers to reduce business costs however they can, without necessarily laying off employees. One option is to reduce employer contributions to employee 401 (k) plans. How much notice is required depends on the type of retirement plan. 

Under a traditional 401(k) plan, employers are generally not required to provide notice of changes or reductions to employees. Traditional 401(k) plans may be suspended or reduced at any time without notice to employees, in accordance with any specifications under the plan. However, if you have a safe harbor 401(k) plan, then you may have extra protections as an employee. Safe harbor 401(k) plans have extra limitations before employers can suspend contributions. 

Safe harbor plans differ from traditional 401(k) plans in a few ways. Safe harbor plans must provide that employer contributions are fully vested when made. Additionally, safe harbor plans are not subject to the annual nondiscrimination tests like traditional plans. In order to suspend contributions to a safe harbor 401(k) plan, the employer must (1) have reserved the right to make mid-year contribution changes during the plan year in the safe-harbor notice issued before the start of the plan year; and (2) issue a supplemental notice 30 days prior to the change, setting out an explanation of the change, the effective date of the change, and the procedure for amending elective contributions. Employers must give the employees a reasonable opportunity to change their deferral election after receiving the supplemental notice. 

Often reducing retirement contributions is a short-term solution, and employees can restore full contributions once the economy improves. Generally, this is seen as a way to avoid cutting the workforce completely during a severe downturn. It’s wise for employees to continue to contribute to their plans if they can, and to share concerns directly with your employer to better understand the rationale behind a decision, and discuss possible solutions. 


This blog post is designed to provide general information on pertinent legal topics. The statements made are provided for educational purposes only. This blog does not provide legal advice. This blog does not create an attorney-client relationship between you and Smith + Malek, PLLC. If you want to create an attorney-client relationship and have specific questions regarding the application of the law to your own circumstances, you should contact our office.



1. Operating a 401(k) Plan, IRS, https://www.irs.gov/retirement-plans/operating-a-401k-plan (last visited Apr. 10, 2020) (Under a traditional 401(k) plan, you have the flexibility of changing the amount of nonelective contributions each year, according to business conditions).
2. 401(k) Plan Overview, IRS, https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview (last visited Apr. 7, 2020). 
3. Note that the SECURE Act, adopted on December 20, 2019, eliminated the notice requirement for safe harbor nonelective plans beginning after December 31, 2019. Safe harbor matching plans still require the plan notice prior to the start of the plan year. Supplemental notices are still required. See Mid-year Changes to Safe Harbor 401(k) Plans and Notices, IRS, https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-plans-or-safe-harbor-notices (last visited Apr. 7, 2020).