Written By Jenny Kiffmeyer, J.D – The Retirement Learning Center
My client recently received word from the TPA for his standard 401(k) plan that the plan is projected to fail the actual deferral percentage (ADP) test for 2026 and may have to provide refunds of excesses to highly compensated employees (HCEs). Could he still amend his 401(k) plan to be a safe harbor plan for 2026 and avoid ADP testing?
Highlights of the discussion
In a word: Yes. Under the SECURE Act, an employer may amend an existing 401(k) plan during the plan year to add a safe harbor nonelective contribution of at least three percent of compensation, provided the amendment is adopted before the 30th day preceding the end of the plan year. For a calendar-year plan, the amendment should be adopted no later than November 30, 2026 (IRC §401(k)(12)(F)).
The plan must provide the safe harbor nonelective contribution to all eligible nonhighly compensated employees (NHCEs), regardless of whether they make elective deferrals. The contributions must be 100 percent vested when made and are subject to applicable distribution restrictions. The employer may exclude HCEs from receiving the safe harbor contribution.
If your client misses the November amendment deadline, another option remains. The SECURE Act permits an employer to amend its plan retroactively to provide a safe harbor nonelective contribution of at least four percent of compensation, provided the amendment is adopted before the last day of the following plan year. For the 2026 calendar-year plan, this generally allows the employer to adopt the amendment during 2027, before December 31, 2027. The contribution must apply to the entire 2026 plan year.
However, several important limitations apply.
- Prior safe harbor matching contributions: The retroactive amendment provisions are unavailable if the plan provided for traditional or qualified automatic contribution arrangement (QACA) safe harbor matching contributions at any time during the 2026 plan year.
- Nondiscrimination testing: Adopting a qualifying nonelective safe harbor arrangement eliminates the ADP testing requirement for 2026. However, the plan may still be subject to actual contribution percentage (ACP) testing if it provides additional matching or employee after-tax contributions that do not qualify for an ACP safe harbor.
- Top-heavy requirements: A 401(k) plan consisting solely of elective deferrals and qualifying safe harbor contributions generally is exempt from the top-heavy rules. However, additional employer contributions, such as discretionary profit-sharing contributions, may cause the plan to lose that exemption and require separate top-heavy testing.
- Participant notices: The SECURE Act eliminated the annual safe harbor notice requirement for 401(k) plans relying on safe harbor nonelective contributions. However, a traditional plan seeking to satisfy the ACP safe harbor for additional matching contributions generally remains subject to the applicable safe harbor notice requirements. Other required participant notices and the opportunity to make or change deferral elections also remain applicable (IRS Notice 2020-86, Q&As 4–13).
- Plan documentation: The employer must adopt an appropriate plan amendment within the applicable deadline and ensure that the plan satisfies the eligibility, contribution, vesting, distribution, and other qualification requirements.
Conclusion
November presents an important year-end planning opportunity for employers concerned about failing ADP testing. By adopting a timely amendment requiring a three percent safe harbor nonelective contribution, an employer may avoid corrective distributions to HCEs. Waiting until after the November deadline generally increases the required contribution to at least four percent if the employer wants to use the retroactive safe harbor amendment option.
Need guidance on safe harbor plan design or year-end compliance strategies? TRA can help you evaluate your options, navigate regulatory requirements, and identify solutions that support both plan sponsors and participants. Contact TRA to discuss your retirement plan strategy before critical year-end deadlines approach.
