Bulletin No. 2009-12March 23, 2009

HIGHLIGHTSOF THIS ISSUEThese synopses are intended only as aids to the reader inidentifying the subject matter covered. They may not berelied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 2009–6, page 694.Fringe benefits aircraft valuation formula. The StandardIndustry Fare Level (SIFL) cents-per-mile rates and terminalcharge in effect for the first half of 2009 are set forth forpurposes of determining the value of non-commercial flightson employer-provided aircraft under section 1.61–21(g) of theregulations.

EMPLOYEE PLANS

T.D. 9447, page 694.Final regulations under section 401 and other sections of theCode provide guidance relating to certain automatic contribu-tion arrangements, eligible rollover distributions, forfeitures,and excise tax on certain excess contributions and excess ag-gregate contributions.

Notice 2009–20, page 711.Weighted average interest rate update; corporate bondindices; 30-year Treasury securities; segment rates.This notice contains updates for the corporate bond weightedaverage interest rate for plan years beginning in March 2009;the 24-month average segment rates; the funding transitionalsegment rates applicable for March 2009; and the minimumpresent value transitional rates for February 2009.

EXEMPT ORGANIZATIONS

Announcement 2009–17, page 714.This announcement is a public notice of the suspension of thefederal tax exemption under section 501(p) of the Code of a

certain organization that has been designated as supporting orengaging in terrorist activity or supporting terrorism. Contribu-tions made to this organization during the period that the or-ganization’s tax-exempt status is suspended are not deductiblefor federal tax purposes.

ADMINISTRATIVE

Announcement 2009–18, page 714.This document contains corrections to final and temporary reg-ulations (T.D. 9441, 2009–7 I.R.B. 460) providing further guid-ance and clarification regarding methods under section 482of the Code to determine taxable income in connection with acost-sharing arrangement in order to address issues that havearisen in administering the current regulations.

Announcement 2009–19, page 715.This document contains corrections to proposed regulations(REG–144615–02, 2009–7 I.R.B. 561) providing further guid-ance and clarification regarding methods under section 482of the Code to determine taxable income in connection with acost-sharing arrangement in order to address issues that havearisen in administering the current regulations.

Announcement 2009–20, page 716.This document contains corrections to final regulations (T.D.9442, 2009–6 I.R.B. 434) under section 1502 of the Codeproviding guidance regarding the treatment of transactions in-volving obligations between members of a consolidated group.

Finding Lists begin on page ii.

The IRS MissionProvide America’s taxpayers top quality service by helping themunderstand and meet their tax responsibilities and by applying

the tax law with integrity and fairness to all.

IntroductionThe Internal Revenue Bulletin is the authoritative instrument ofthe Commissioner of Internal Revenue for announcing officialrulings and procedures of the Internal Revenue Service and forpublishing Treasury Decisions, Executive Orders, Tax Conven-tions, legislation, court decisions, and other items of generalinterest. It is published weekly and may be obtained from theSuperintendent of Documents on a subscription basis. Bulletincontents are compiled semiannually into Cumulative Bulletins,which are sold on a single-copy basis.

It is the policy of the Service to publish in the Bulletin all sub-stantive rulings necessary to promote a uniform application ofthe tax laws, including all rulings that supersede, revoke, mod-ify, or amend any of those previously published in the Bulletin.All published rulings apply retroactively unless otherwise indi-cated. Procedures relating solely to matters of internal man-agement are not published; however, statements of internalpractices and procedures that affect the rights and duties oftaxpayers are published.

Revenue rulings represent the conclusions of the Service on theapplication of the law to the pivotal facts stated in the revenueruling. In those based on positions taken in rulings to taxpayersor technical advice to Service field offices, identifying detailsand information of a confidential nature are deleted to preventunwarranted invasions of privacy and to comply with statutoryrequirements.

Rulings and procedures reported in the Bulletin do not have theforce and effect of Treasury Department Regulations, but theymay be used as precedents. Unpublished rulings will not berelied on, used, or cited as precedents by Service personnel inthe disposition of other cases. In applying published rulings andprocedures, the effect of subsequent legislation, regulations,

court decisions, rulings, and procedures must be considered,and Service personnel and others concerned are cautionedagainst reaching the same conclusions in other cases unlessthe facts and circumstances are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.This part includes rulings and decisions based on provisions ofthe Internal Revenue Code of 1986.

Part II.—Treaties and Tax Legislation.This part is divided into two subparts as follows: Subpart A,Tax Conventions and Other Related Items, and Subpart B, Leg-islation and Related Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.To the extent practicable, pertinent cross references to thesesubjects are contained in the other Parts and Subparts. Alsoincluded in this part are Bank Secrecy Act Administrative Rul-ings. Bank Secrecy Act Administrative Rulings are issued bythe Department of the Treasury’s Office of the Assistant Secre-tary (Enforcement).

Part IV.—Items of General Interest.This part includes notices of proposed rulemakings, disbar-ment and suspension lists, and announcements.

The last Bulletin for each month includes a cumulative indexfor the matters published during the preceding months. Thesemonthly indexes are cumulated on a semiannual basis, and arepublished in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

March 23, 2009 2009–12 I.R.B.

Part I. Rulings and Decisions Under the Internal Revenue Codeof 1986Section 61.—Gross IncomeDefined

26 CFR 1.61–21: Taxation of fringe benefits.

Fringe benefits aircraft valuation for-mula. The Standard Industry Fare Level(SIFL) cents-per-mile rates and terminalcharge in effect for the first half of 2009are set forth for purposes of determiningthe value of non-commercial flights onemployer-provided aircraft under section1.61–21(g) of the regulations.

Rev. Rul. 2009–6

For purposes of the taxation of fringebenefits under section 61 of the Inter-nal Revenue Code, section 1.61–21(g) ofthe Income Tax Regulations provides arule for valuing noncommercial flightson employer-provided aircraft. Section1.61–21(g)(5) provides an aircraft valua-tion formula to determine the value of suchflights. The value of a flight is determinedunder the base aircraft valuation formula(also known as the Standard Industry Fare

Level formula or SIFL) by multiplyingthe SIFL cents-per-mile rates applicablefor the period during which the flight wastaken by the appropriate aircraft multipleprovided in section 1.61–21(g)(7) and thenadding the applicable terminal charge. TheSIFL cents-per-mile rates in the formulaand the terminal charge are calculated bythe Department of Transportation and arereviewed semi-annually.

The following chart sets forth the termi-nal charge and SIFL mileage rates:

Period During Whichthe Flight Is Taken

TerminalCharge

SIFL MileageRates

1/1/09 - 6/30/09 $45.41 Up to 500 miles= $.2484 per mile

501-1500 miles= $.1894 per mile

Over 1500 miles= $.1821 per mile

DRAFTING INFORMATION

The principal author of this revenueruling is Kathleen Edmondson of theOffice of Division Counsel/AssociateChief Counsel (Tax Exempt/Govern-ment Entities). For further informationregarding this revenue ruling, contactMs. Edmondson at (202) 622–0047 (not atoll-free call).

Section 401.—QualifiedPension, Profit-Sharing,and Stock Bonus Plans26 CFR 1.401(k)–1: Certain cash or deferred ar-rangements.

T.D. 9447

DEPARTMENT OF THETREASURYInternal Revenue Service26 CFR Parts 1 and 54

Automatic ContributionArrangements

AGENCY: Internal Revenue Service(IRS), Treasury.

ACTION: Final regulations.

SUMMARY: This document contains fi-nal regulations relating to automatic con-tribution arrangements. These regulationsaffect administrators of, employers main-taining, participants in, and beneficiariesof section 401(k) plans and other eligibleplans that include an automatic contribu-tion arrangement.

DATES: Effective date: These regulationsare effective on February 24, 2009.

Applicability date: Except as pro-vided in §§1.401(k)–3(j)(1)(i) and1.401(m)–2(a)(6)(ii), the final regula-tions relating to qualified automatic con-tribution arrangements (§§1.401(k)–2,1.401(k)–3, 1.401(m)–2, and 1.401(m)–3)apply to plan years beginning on or afterJanuary 1, 2008. The regulations re-lating to eligible automatic contributionarrangements (§§1.402(c)–2, 1.411(a)–4,1.414(w)–1, and 54.4979–1) apply forplan years beginning on or after January1, 2010.

FOR FURTHER INFORMATIONCONTACT: R. Lisa Mojiri-Azad,Dana Barry, or William D. Gibbs at (202)622–6060 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information con-tained in these final regulations has beenreviewed and approved by the Office ofManagement and Budget in accordancewith the Paperwork Reduction Act of 1995

2009–12 I.R.B. 694 March 23, 2009

(44 U.S.C. 3507(d)) under control number1545–2135 .

The collection of information in thesefinal regulations is in §§1.401(k)–3and 1.414(w)–1. The information in§1.401(k)–3 is required to comply withthe statutory notice requirements in sec-tions 401(k)(13) and 401(m)(12), and isexpected to be included in the notices cur-rently provided to employees that informthem of their rights and benefits underthe plan. The collection of informationunder §1.414(w)–1 is required to complywith the statutory notice requirements ofsection 414(w) and is expected to be in-cluded in the notices currently provided toemployees that inform them of their rightsand benefits under the plan.

An agency may not conduct or sponsor,and a person is not required to respond to, acollection of information unless it displaysa valid control number.

Books or records relating to a collectionof information must be retained as longas their contents may become material inthe administration of any internal revenuelaw. Generally, tax returns and tax returninformation are confidential, as requiredby 26 U.S.C. 6103.

Background

This document contains amendments toregulations under sections 401(k), 401(m),402(c), 411(a), and 4979 of the InternalRevenue Code (Code) and new regulationsunder section 414(w) in order to reflectcertain of the provisions of section 902 ofthe Pension Protection Act of 2006, Pub-lic Law 109–280 (PPA ’06), taking intoaccount certain of the changes made bysection 109(b) of the Worker, Retiree, andEmployer Recovery Act of 2008, PublicLaw 110–458 (WRERA).

Section 902 of PPA ’06 added sections401(k)(13), 401(m)(12), and 414(w) to theCode to facilitate automatic contributionarrangements (sometimes referred to asautomatic enrollment) in qualified cashor deferred arrangements under section401(k), as well as in similar arrangementsunder sections 403(b) and 457(b). An au-tomatic contribution arrangement is a cashor deferred arrangement that provides that,in the absence of an affirmative electionby an eligible employee, a default elec-tion applies under which the employee istreated as having made an election to have

a specified contribution made on his or herbehalf under the plan.

Section 401(k)(1) provides that aprofit-sharing, stock bonus, pre-ERISAmoney purchase, or rural cooperative planwill not fail to qualify under section 401(a)merely because it contains a qualifiedcash or deferred arrangement. Section1.401(k)–1(a)(2) defines a cash or deferredarrangement (CODA) as an arrangementunder which an eligible employee maymake a cash or deferred election withrespect to contributions to, or accruals orother benefits under, a plan that is intendedto satisfy the requirements of section401(a). Section 1.401(k)–1(a)(3)(i)defines a cash or deferred election as anydirect or indirect election (or modificationof an earlier election) by an employee tohave the employer either: (1) provide anamount to the employee in the form ofcash (or some other taxable benefit) thatis not currently available; or (2) contributean amount to a trust, or provide an accrualor other benefit, under a plan deferring thereceipt of compensation. For purposes ofdetermining whether an election is a cashor deferred election, §1.401(k)–1(a)(3)(ii)provides that it is irrelevant whether thedefault that applies in the absence ofan affirmative election is cash (or someother taxable benefit) or a contribution,an accrual, or other benefit under a plandeferring the receipt of compensation.Contributions that are made pursuantto a cash or deferred election under aqualified CODA are commonly referredto as elective contributions.

In order for a CODA to be a qualifiedCODA, it must satisfy a number ofother requirements. Section 401(k)(2)(A)provides that the amount that each eligibleemployee under the arrangement maydefer as an elective contribution must beavailable to the employee in cash. Section1.401(k)–1(e)(2)(ii) provides that, in orderfor a CODA to satisfy this requirement, thearrangement must provide each eligibleemployee with an effective opportunityto make (or change) a cash or deferredelection at least once during each planyear.

Section 401(k)(2)(B) provides thata qualified CODA must provide thatelective contributions may only bedistributed after certain events, includinghardship and severance from employment.Similar distribution restrictions apply

under sections 403(b)(7) and 403(b)(11).Section 457(d)(1)(A) includes distributionrestrictions for eligible governmentaldeferred compensation plans.

Section 401(k)(3)(A)(ii) applies a spe-cial nondiscrimination test to the electivecontributions of highly compensated em-ployees, within the meaning of section414(q) (HCEs). Under this test, calledthe actual deferral percentage (ADP) test,the average percentage of compensationdeferred for HCEs is compared annuallyto the average percentage of compensationdeferred for nonhighly compensated em-ployees (NHCEs) eligible under the plan,and if certain limits are exceeded by theHCEs, corrective action must be taken.Pursuant to section 401(k)(8), one methodof correction is distribution to HCEs ofexcess contributions made on their behalf.

Section 401(m) provides a parallel testfor matching contributions and employeeafter-tax contributions under a definedcontribution plan, called the actual con-tribution percentage (ACP) test. Pursuantto section 401(m)(6), one method of cor-rection of the ACP test is distribution toHCEs of excess aggregate contributionsmade on their behalf.

Sections 401(k)(12) and 401(m)(11)provide a design-based safe harbor un-der which elective contributions undera CODA and any associated matchingcontributions are treated as satisfying theADP and ACP tests if the arrangementmeets certain contribution and noticerequirements. Sections 1.401(k)–3 and1.401(m)–3 provide guidance on therequirements for this design-based safeharbor.

Sections 401(k)(13) and 401(m)(12),added by PPA ’06 and effective for planyears beginning on or after January 1,2008, provide an alternative design-basedsafe harbor for a CODA that provides forautomatic contributions at a specified leveland meets certain employer contribution,notice, and other requirements. A CODAthat satisfies these requirements, referredto as a qualified automatic contributionarrangement (QACA), is treated assatisfying the ADP test and ACP test withrespect to matching contributions.

Section 414(w), added to the Code bysection 902(d)(1) of PPA ’06 and effec-tive for plan years beginning on or afterJanuary 1, 2008, further facilitates au-tomatic enrollment by providing limited

March 23, 2009 695 2009–12 I.R.B.

relief from the distribution restrictionsunder section 401(k)(2)(B), 403(b)(7),403(b)(11), or 457(d)(1)(A) in the caseof an eligible automatic contribution ar-rangement (EACA).

Sections 414(w)(1) and 414(w)(2) pro-vide that an applicable employer plan thatcontains an EACA is permitted to allowemployees to elect to receive a distributionequal to the amount of default electivecontributions (and attributable earnings)made with respect to the employeebeginning with the first payroll period towhich the EACA applies to the employeeand ending with the effective date ofthe election. The election must be madewithin 90 days after the date of the firstdefault elective contribution with respectto the employee under the arrangement.Sections 414(w)(1)(A) and 414(w)(1)(B)provide that the amount of the distributionis includible in gross income for thetaxable year in which the distribution ismade, but is not subject to the additionalincome tax under section 72(t).

Section 414(w)(3) defines an EACAas an arrangement under which: (1) aparticipant may elect to have the employermake payments as contributions underthe plan on behalf of the participant,or to the participant directly in cash;(2) the participant is treated as havingelected to have the employer make suchcontributions in an amount equal to auniform percentage of compensationprovided under the plan until theparticipant specifically elects not to havesuch contributions made (or specificallyelects to have such contributions made at adifferent percentage); and (3) participantsare provided a notice that satisfiesthe requirements of section 414(w)(4).Section 109(b)(4) of WRERA eliminatedthe provision previously found undersection 414(w)(3)(C) that, in the absenceof an investment election by theparticipant, default elective contributionsmust be invested in accordance with theregulations prescribed by the Secretaryof Labor under section 404(c)(5) of theEmployee Retirement Income SecurityAct of 1974 (ERISA).

Section 414(w)(4) requires that, withina reasonable period before each plan year,each employee to whom the arrange-ment applies for such year receive writtennotice of the employee’s rights and obli-

gations under the arrangement which issufficiently accurate and comprehensiveto apprise the employee of such rightsand obligations. Section 414(w)(4)(A)(ii)requires that the notice be written in amanner calculated to be understood bythe average employee to whom the ar-rangement applies. Section 414(w)(4)(B)provides that the notice must explain:(1) the employee’s rights under the ar-rangement to elect not to have electivecontributions made on the employee’sbehalf or to elect to have contributionsmade at a different percentage; and (2)how contributions made under the auto-matic contribution arrangement will beinvested in the absence of any investmentdecision by the employee. In addition,the employee must be given a reasonableperiod of time after receipt of the noticeand before the first elective contribution ismade to make an election with respect tocontributions. In many respects, the noticeunder section 414(w)(4) is the same as thenotice required under section 401(k)(13)for a QACA.

Section 414(w)(5), as amended bysection 109(b)(5) of WRERA, definesan applicable employer plan as a trustdescribed in section 401(a) that isexempt from tax under section 501(a),a plan described in section 403(b), asection 457(b) plan that is maintainedby a governmental employer describedin section 457(e)(1)(A), a simplifiedemployee pension the terms of whichprovide for a salary reduction arrangementdescribed in section 408(k)(6), or aSIMPLE described in section 408(p).

Section 414(w)(6) provides that a with-drawal described in section 414(w)(1)is not to be taken into account for pur-poses of the ADP test. Section 109(b)(6)of WRERA amended section 414(w)(6)to provide that a withdrawal describedin section 414(w)(1) is not to be takeninto account for purposes of applying thelimitation under section 402(g)(1).

Section 411(a)(3)(G), as amended bysection 902(d)(2) of PPA ’06, providesthat a matching contribution shall not betreated as forfeitable merely because thematching contribution is forfeitable if it re-lates to a contribution that is withdrawnunder an automatic contribution arrange-ment that satisfies the requirements of sec-tion 414(w).

Section 4979 provides for an excise taxon excess contributions (within the mean-ing of section 401(k)(8)(B)) and excess ag-gregate contributions (within the meaningof section 401(m)(6)(B)) not distributedwithin 21/2 months after the close of theplan year for which the contributions aremade. Section 902 of PPA ’06 amendedsection 4979 to lengthen this 21/2 monthcorrection period for excess contributionsand excess aggregate contributions underan EACA to 6 months. Thus, in the caseof an EACA that is part of a section 401(k)plan, the section 4979 excise tax does notapply to any excess contributions or excessaggregate contributions which, togetherwith income allocable to the contributions,are distributed or forfeited (if forfeitable)within 6 months after the close of the planyear.

Section 902 of PPA ’06 amended sec-tion 4979(f)(2) to provide that any distri-butions of excess contributions and excessaggregate contributions (whether or notunder an EACA) are includible in theemployee’s gross income for the taxableyear in which distributed. However,pursuant to sections 401(k)(8)(D) and401(m)(7)(A), the distributions are notsubject to the additional income taxunder section 72(t). Section 902 ofPPA ’06 also amended sections 401(k)(8),401(m)(6), and 4979(f)(1) to eliminatethe requirement that distributions ofexcess contributions or excess aggregatecontributions (whether or not under anEACA) include income allocable to theperiod after the end of the plan year (gapperiod income).

On November 8, 2007, proposed reg-ulations under sections 401(k), 401(m),402(c), 411(a), 414(w), and 4979(f) re-lating to automatic contribution arrange-ments were issued (REG–133300–07,2007–2 C.B. 1140 [72 FR 63144]). Writ-ten public comments were received onthe proposed regulations, and a publichearing was held on May 19, 2008. Afterconsideration of the comments, these finalregulations adopt the provisions of theproposed regulations with certain modifi-cations, the most significant of which arehighlighted in the Summary of Commentsand Explanation of Revisions. In addition,these final regulations reflect the amend-ments to sections 401(k)(13) and 414(w)that were made by WRERA.

2009–12 I.R.B. 696 March 23, 2009

Summary of Comments andExplanation of Revisions

I. Qualified Automatic ContributionArrangement under Section 401(k)(13)

A. Minimum percentage requirement

Section 401(k)(13)(C)(iii) sets forth aseries of minimum default contributionpercentages that an automatic contribu-tion arrangement must satisfy in order tobe a qualified automatic contribution ar-rangement (QACA). The final regulationsclarify that the minimum percentage forthe initial period is based on when theemployee first has contributions madepursuant to a default election under theQACA. Thus, if an employee makes anaffirmative election before the defaultcontribution would have begun, thenthe initial period does not begin for theemployee. The minimum percentages areincreased for plan years after the initialperiod.

Several commentators requested guid-ance on the application of the minimumpercentage requirement in the case of arehired employee. The final regulationsprovide that the minimum percentages aredetermined without regard to whether anemployee has continued to be eligible tomake contributions under the plan. Thus,the minimum percentage is generally de-termined based on the number of yearssince the date the employee first had de-fault contributions made under the QACA.However, in response to recordkeepingconcerns raised by commentators, thefinal regulations also provide that a plan ispermitted to treat an employee who for anentire plan year did not have contributionsmade pursuant to a default election underthe QACA as if the employee had nothad such contributions for any prior planyear as well. For example, if an employeeterminates in one plan year, remainsterminated for a full plan year, and isrehired in a subsequent plan year, the planis permitted to provide that a new initialperiod begins after the employee is rehired,regardless of whether the employee had infact had contributions made pursuant to adefault election under the QACA in someearlier plan year.

Other commentators asked whetherplans are permitted to limit the durationof an affirmative election or to require

employees to make new elections. Underthe final regulations, automatic enroll-ment applies for periods during whichthe affirmative election is not in effect.Accordingly, a plan could specificallyprovide that an affirmative election ex-pires and, thus, require an employee tomake a new affirmative election if he orshe wants the prior rate of elective con-tribution to continue. In the absence of asecond affirmative election, the employeewill be automatically enrolled at the plan’sdefault percentage (which must meet theminimum percentage requirement de-scribed in the preceding paragraph). Forexample, if an employer has a QACAbeginning in 2009 and the plan providesthat all affirmative elections in effect onDecember 31, 2010 expire on that date,then, if the QACA continues into 2011, alleligible employees who do not make a newaffirmative election will be automaticallyenrolled under the QACA. Similarly, ifan employee who made an affirmativeelection takes a hardship withdrawal underthe plan and the plan suspends electivecontributions for 6 months after receiptof the hardship distribution in accordancewith §1.401(k)–3(c)(6)(v)(B), then, if theplan does not reinstate the affirmativeelection at the end of the 6 months, theemployer must automatically enroll theemployee.

The final regulations provide that, forplan years beginning on or after January1, 2010, compensation for purposes ofdetermining default contributions meanssafe harbor compensation as defined in§1.401(k)–3(b)(2).

B. Uniformity requirement

Section 401(k)(13)(C)(iii) providesthat the default percentage must be ap-plied uniformly. The proposed regulationsprovided that a plan does not fail to sat-isfy this uniformity requirement merelybecause: the percentage varies based onthe number of years an eligible employeehas participated in the automatic con-tribution arrangement intended to be aQACA; the rate of elective contributionsunder a cash or deferred election that is ineffect immediately prior to the effectivedate of the default percentage underthe QACA is not reduced; the rate ofelective contributions is limited so as notto exceed the limits of sections 401(a)(17),

402(g) (determined with or withoutcatch-up contributions described in section402(g)(1)(C) or 402(g)(7)), and 415; orthe default election is not applied duringthe period an employee is not permittedto make elective contributions in orderfor the plan to satisfy the requirements of§1.401(k)–3(c)(6)(v)(B).

Some commentators asked whether aQACA may provide for an increase in thedefault percentage in the middle of theplan year. These commentators suggestedthat some employers wanted to provide forsuch an increase to coincide with salaryincreases or performance evaluations.

To address this issue, the final regu-lations expand the exception to the uni-formity requirement that allows variancebased on the number of years since thedate the employee first had contributionsmade pursuant to a default election underan arrangement that is intended to be aQACA. Under the final regulations, thedefault percentage may also vary based onthe portions of years since that date. Thus,the plan may provide for the increase ofthe default percentage mid-year, as longas the percentage is uniform based on thenumber of years or portions of years sincean employee first had contributions madepursuant to a default election and satisfiesthe minimum percentage requirementthroughout the plan year.

C. Notice timing requirement

The proposed regulations provided thata QACA satisfies the notice requirementof section 401(k)(13)(E) only if thenotice satisfies the notice requirementsunder section 401(k)(12) and satisfies theadditional requirements found in section401(k)(13)(E)(ii). Section 401(k)(12)(D)and section 401(k)(13)(E)(i) provide thatthe notice must be provided within areasonable period before each plan yearto each employee eligible to participate inthe QACA.

The final regulations under section401(k)(12) provide that the determinationof whether the notice satisfies the timingrequirement is based on all of the relevantfacts and circumstances. The timing re-quirement is deemed satisfied if at least 30days (and no more than 90 days) beforethe beginning of each plan year, the noticeis provided to each eligible employee.In the case where an eligible employee

March 23, 2009 697 2009–12 I.R.B.

is not provided the notice within this30–90 day period because the employeebecomes eligible after the 90th day beforethe beginning of the plan year, the timingrequirement is deemed to be satisfied ifthe notice is provided no more than 90days before the employee becomes eligi-ble and no later than the date the employeebecomes eligible.

The proposed regulations under sec-tion 401(k)(13) applied these same rulesto the notice required under section401(k)(13)(E)(i). In accordance withsection 401(k)(13)(E)(ii), the proposedregulations also provided that the noticesatisfies the timing requirements only if itis provided sufficiently early so that theemployee has a reasonable period of timeafter receipt of the notice and before thefirst contribution is made pursuant to adefault election under the arrangement tomake an affirmative election to defer adifferent amount or percentage.

Some commentators raised a concernabout meeting the notice requirement foremployees who are eligible to participatein the plan immediately upon hire. Com-mentators suggested that employers begiven a grace period to provide notice,such as 15 days after hire, as long as theemployee has an effective opportunity toelect not to make contributions or makean affirmative election to defer a differentamount or percentage of compensationprior to the first contribution made pur-suant to a default election.

The final regulations modify thedeemed satisfaction of timing requirementset forth in §1.401(k)–3(d)(3)(ii). Theregulations provide that if it is not practi-cable for the notice to be provided on orbefore the date specified in the plan thatan employee becomes eligible, the noticewill nonetheless be treated as providedtimely if it is provided as soon as practi-cable after that date and the employee ispermitted to elect to defer from all types ofcompensation that may be deferred underthe plan earned beginning on that date.Thus, an employer is required to providethe notice to the employee prior to the paydate for the payroll period that includesthe date the employee becomes eligible.This change applies to the safe harbordescribed in section 401(k)(12), as well assection 401(k)(13).

The final regulations provide rules forwhen the default election must first be-

come effective. In accordance with section401(k)(13)(E)(ii)(III), the final regulationsprovide that the default election must beeffective no earlier than a reasonable pe-riod of time after the receipt of the notice(in order to provide the employee with areasonable period of time to make an affir-mative election). However, the final reg-ulations provide that the default electionmust be effective no later than the earlierof the pay date for the second payroll pe-riod that begins after the date the noticeis provided or the first pay date that oc-curs at least 30 days after the notice isprovided. Notwithstanding any delay inwhen the first default contribution is made,nonelective contributions that are based ona full year’s contributions and the rate ofmatching contributions that varies basedon compensation must be based on the safeharbor compensation earned since the par-ticipant was first eligible under the plan.

D. Exclusion of current affirmativeelections from automatic enrollment

The proposed regulations providedthat an automatic contribution arrange-ment does not fail to be a QACA merelybecause the default election is not appliedto an employee who was eligible underthe cash or deferred arrangement (or apredecessor arrangement) immediatelyprior to the effective date of the QACA andon that effective date had an affirmativeelection in effect (that remains in effect)to have elective contributions made on hisor her behalf (in a specified amount orpercentage of compensation) or not haveelective contributions made on his or herbehalf.

Some commentators requested that em-ployers be permitted to treat employeeswho did not affirmatively elect to makeelective contributions under the plan asthough they had affirmatively elected zero.These commentators stated that it wouldbe administratively difficult to determinewhich employees had affirmative electionsin effect prior to the effective date of theQACA.

The regulations do not expand theexception for automatically enrolling cur-rent employees to employees who havenot made an affirmative election. Un-der section 401(k)(13)(C)(iv)(II), onlythose employees who had an affirmativeelection in effect immediately before the

QACA became effective are permitted tobe excluded from having a default electionapply to them.

E. Other topics

Commentators requested clarificationas to whether the safe harbor nonelec-tive and matching contributions madeunder a QACA are eligible for hardshipwithdrawal. The final regulations clarifythat these safe harbor contributions aresubject to the withdrawal restrictionsfound in §1.401(k)–1(d) that applyto QNECs and QMACs. Thus, themaximum distributable amount under§1.401(k)–1(d)(3)(ii) does not includeearnings, QNECs, QMACs, or these safeharbor contributions.

A commentator asked whether safe har-bor matching or nonelective contributionswere required for all employees, includingthose eligible employees with affirmativeelections in effect. The final regulationsretain the requirement that all eligible em-ployees must receive safe harbor matchingcontributions or nonelective contributions,whichever is applicable. The special treat-ment under section 401(k)(13)(C)(iv) foremployees who have an affirmative elec-tion in effect does not affect whether safeharbor matching contributions or nonelec-tive contributions are required to be madefor those employees.

II. Eligible Automatic ContributionArrangement under Section 414(w)

A. Non-universal eligible automaticcontribution arrangements

The proposed regulations provided thatan eligible automatic contribution arrange-ment (EACA) is an automatic contributionarrangement under an applicable employerplan that applies to each “eligibleemployee.” An eligible employee wasdefined as an employee who is eligibleto make a cash or deferred election underthe plan. Therefore, under the proposedregulations, an employer was required toapply automatic enrollment to all currentand new employees eligible to make adeferral election under the applicable planwho did not have an affirmative electionin effect.

Commentators requested flexibilityin the implementation of an EACA bypermitting an employer to apply automatic

2009–12 I.R.B. 698 March 23, 2009

enrollment only to those employees whoare hired on or after the effective date ofthe EACA.

The final regulations modify the rulein the proposed regulations to providethat the employees who must be subjectto the automatic enrollment provisionsunder an EACA are only those employeeswho are specified in the plan as beingcovered employees under the EACA.Thus, automatic enrollment under anEACA need not apply to all employeeseligible to make a deferral election underthe applicable plan, but only to thoseemployees who are covered by the EACA.

The final regulations provide that theplan document must specify the employ-ees who are covered under the EACAand must state whether an employee whomakes an affirmative election remainscovered under the EACA. Under section414(w)(4), the notice regarding anemployee’s rights and obligations underthe arrangement need only be providedto those employees who are coveredemployees under the EACA as set forthin the plan. Thus, if a plan provides thatan employee who makes an affirmativeelection is no longer a covered employeeunder the EACA, then the employee is notrequired to receive the notice after he orshe makes an affirmative election.

With respect to the correction of ex-cess contributions for a plan year be-ginning on or after January 1, 2010,the final regulations provide that a planthat contains an EACA is entitled to theextended 6-month period for correctingexcess contributions and excess aggregatecontributions without incurring an excisetax under section 4979, only if all eligibleNHCEs and eligible HCEs are coveredemployees under the EACA for theentire plan year (or the portion of theplan year that the employees are eligibleemployees). Thus, if an EACA coversfewer than all the eligible employees underthe plan, the employer will be unable totake advantage of the extension undersection 4979.

B. Uniformity requirement

The proposed regulations providedthat an EACA must provide thatthe default elective contribution is auniform percentage of compensation.The exceptions to the uniformity

requirement for a QACA set forth in§1.401(k)–3(j)(2)(iii) also applied to anEACA (without regard to whether thearrangement was intended to be a QACA).

Some commentators requested that theuniformity requirement be eased if theplan is a multiemployer plan or a multipleemployer plan, or if the sponsor wantsto have different default contributionsfor collectively bargained and non-col-lectively bargained employees. The finalregulations do not specifically permitthis. However, these plan sponsors canaccomplish a similar goal by establish-ing separate EACAs for each of theseseparate groups. To address the possibilitythat a plan may contain more than oneEACA, the final regulations providethat the requirement that the defaultelective contributions under an EACA bea uniform percentage of compensationis applied by aggregating all automaticcontribution arrangements within theplan that are intended to be EACAs.For this purpose, in the case of a plansubject to section 410(b), the definitionof plan is determined after applying thedisaggregation rules of §1.401(k)–1(b)(4).Thus, a plan that is subject to the rulesof section 410(b) is permitted to providefor separate EACAs for different groupsof collectively bargained employees ordifferent employers in a multiple employerplan with a different default percentagefor each EACA, but such a plan could nothave different default percentages applyto different groups of employees that arein the same plan after application of thedisaggregation rules of §1.401(k)–1(b)(4).

C. Mid-year implementation of an eligibleautomatic contribution arrangement

Section 401(k)(12)(D) contains the no-tice requirement applicable to a plan that isrelying on the safe harbor for nondiscrim-ination testing in section 401(k)(12). It re-quires that the notice be provided “withina reasonable period before any year.” Thefinal regulations under section 401(k)(12)provide that the notice must be providedwithin a reasonable period of time beforethe plan year (or, in the first year thatthe employee becomes eligible, within areasonable period of time before the em-ployee becomes eligible). The final reg-ulations further provide that whether thistiming requirement is satisfied is based

upon all of the relevant facts and circum-stances and that the timing requirement isdeemed to be satisfied if the notice is givenat least 30 days (and no more than 90 days)before the beginning of each plan year. Inthe case of an employee who becomes el-igible after the 90th day before the begin-ning of the plan year, the timing require-ment is deemed to be satisfied if the noticeis provided no more than 90 days beforethe employee becomes eligible for the cashor deferred arrangement (and no later thanthe date the employee becomes eligible).

Section 401(k)(13)(E), which con-tains the notice requirements applica-ble to a QACA, and section 414(w)(4),which contains the notice requirementsapplicable to an EACA, each requirethat the notice be provided “within areasonable period before each plan year.”The proposed regulations interpreted theseprovisions in a manner consistent with theinterpretation in the final regulations undersection 401(k)(12) of the almost identicallanguage in that section, including therequirement that the notice be providedwithin a reasonable period of time beforeeach plan year, except that, for individualswho become eligible employees during theplan year, the notice need only be providedwithin a reasonable period before theemployee becomes an eligible employee.

Some commentators noted that thenotice timing requirement could be inter-preted to preclude the establishment ofan EACA in the middle of the plan year,in situations where the notice was notprovided before the beginning of the planyear. They suggested that the statutoryrequirement to provide notice before thestart of each plan year should not precludestarting an EACA in the middle of theplan year of an existing cash or deferredarrangement that is not an EACA, if noticeis provided to each eligible employeewithin a reasonable period of time beforethe employee becomes eligible for thearrangement.

The final regulations do not adoptthis suggestion. Instead, the final reg-ulations generally retain the rule in theproposed regulations, which is consis-tent with the statutory requirements ofsection 414(w)(4) and with the interpre-tation of the identical language in section401(k)(13) and the almost identical lan-guage in section 401(k)(12). The finalregulations do, however, treat individuals

March 23, 2009 699 2009–12 I.R.B.

who first become covered under an auto-matic contribution arrangement as a resultof a change in employment status the sameas individuals who first become eligible tomake a cash or deferred election for pur-poses of the notice timing requirements.

Consistent with the revisions to thedeemed timing rule for purposes of sec-tions 401(k)(12) and 401(k)(13) describedin this preamble, the final regulations pro-vide that if it is not practicable for thenotice to be provided on or before the datespecified in the plan that an employeebecomes eligible, the notice will nonethe-less be treated as provided timely if it isprovided as soon as practicable after thatdate and the employee is permitted to electto defer from all types of compensationthat may be deferred under the plan earnedbeginning on that date. Thus, an employeris required to provide the notice to the em-ployee prior to the pay date for the payrollperiod that includes the date the employeebecomes eligible.

D. Permissible withdrawal

Section 414(w)(2) limits the period forthe special election to withdraw defaultelective contributions to the first 90 daysafter the date of the first default contri-bution under the EACA. The proposedregulations provided that the date of thefirst default elective contribution is thedate that the compensation that is subjectto the cash or deferred election wouldotherwise have been included in grossincome.

Some commentators suggested that the90-day period start from the date the firstcontribution is received by the plan for theparticipant. The final regulations retain therule in the proposed regulations that the90-day period starts after the date the com-pensation would otherwise have been in-cluded in gross income. This date is usedfor other relevant Code provisions, such asthe application of the section 402(g) limi-tation.

If an employer is concerned about inad-vertently permitting withdrawal electionsoutside the 90-day period due to misiden-tifying the date of the first default electivecontribution as defined under the regula-tions, the plan is permitted to limit the pe-riod during which the election can be madeto less than 90 days. Under the final reg-ulations, a plan is permitted to set an ear-

lier deadline for the election to withdrawdefault elective contributions. However, ifa plan offers a permissible withdrawal forcovered employees, the election period forthe covered employees must be at least 30days.

The final regulations also providethat the date of the first default elec-tive contribution must take into accountany default elective contributions madeunder any EACA under the plan. Forthis purpose, all EACAs under the planmust be aggregated. However, if theplan provides for multiple EACAs tocover different employees in differentportions of the plan and these portions ofthe plan are mandatorily disaggregatedunder section 410(b), then there is norequirement to aggregate those differentEACAs. Thus, in the case where a planthat is subject to the rules of section 410(b)has separate EACAs for different groupsof collectively bargained employeesor different employers in a multipleemployer plan, the date for determiningthe first default elective contribution isdetermined with respect to each EACAwithin the separate disaggregated plan.In addition, in response to comments,the final regulations provide that forpurposes of determining the date of thefirst default elective contribution, a planis permitted to treat an employee who foran entire plan year did not have defaultelective contributions made under theEACA as if the employee had not hadsuch contributions for any prior plan yearas well.

Commentators asked whether em-ployers can restrict the permissible with-drawals based on subsequent affirmativeelections made by employees. For ex-ample, one commentator requested thatan employer be permitted to limit thepermissible withdrawal election to thoseemployees who are automatically enrolledand who do not make a subsequent affir-mative election of an amount (other thanzero) within the 90-day election period.Under a section 401(a) plan or a section403(b) plan, an employer is not permittedto condition an employee’s right to takea permissible withdrawal on the level ofthe employee’s deferral election under theplan. Thus, an employee’s permissiblewithdrawal rights may not be restrictedbased upon the employee’s subsequentaffirmative election.

The proposed regulations provided thatthe effective date of the permissible with-drawal election must be no later than thelast day of the payroll period that begins af-ter the date the election is made. This rulewas included in the proposed regulationsto limit section 414(w) withdrawals to de-fault elective contributions made for shortperiods of time. In response to comments,the final regulations modify this rule toprovide that the latest effective date of thepermissible withdrawal election cannot beafter the earlier of: (1) the pay date for thesecond payroll period beginning after theelection is made, or (2) the first pay datethat occurs at least 30 days after the elec-tion is made. Of course, a plan may permitan earlier effective date.

Commentators also requested that theIRS clarify when the permissible with-drawal amount must be distributed. Thefinal regulations clarify that the permissi-ble withdrawal distribution must be madein accordance with the plan’s ordinarytiming procedures for processing distri-butions and making distributions. Thus,the permissible withdrawal distributionshould be processed and distributed nodifferently than any other distribution per-mitted under the plan.

The proposed regulations provided thata permissible withdrawal distribution maybe reduced by any generally applicablefees, but specified that the plan may notcharge a different fee for a distribution un-der section 414(w) than would apply toother distributions. In response to com-ments, the final regulations clarify that theplan cannot charge a higher fee for a dis-tribution under section 414(w) than wouldapply to any other distributions of cash.

One commentator requested guidancewith respect to the withholding treatmentof permissible withdrawal amounts. Theseamounts are subject to section 3405(b).

E. Forfeiture of employer matchingcontributions

The proposed regulations provided thatmatching contributions with respect to de-fault elective contributions that had beendistributed pursuant to a permissible with-drawal election must be forfeited. In re-sponse to comments, the final regulationsclarify that the forfeiture applies to anymatching contributions that have been al-located to the participant’s account, ad-

2009–12 I.R.B. 700 March 23, 2009

justed for allocable gain or loss. The fi-nal regulations provide that the plan is per-mitted to provide that matching contribu-tions will not be made with respect to anywithdrawal made under §1.414(w)–1(c) ifthe withdrawal has been made prior to thedate as of which the matching contribu-tions would otherwise be allocated.

III. Other Issues

A. Other automatic contributionarrangements

Many employers have previouslyadopted automatic contribution arrange-ments as originally described in priorguidance, such as Rev. Rul. 2000–8,2000–1 C.B. 617. This prior guidance,which was reflected in regulations undersection 401(k) issued in 2004, permittedemployers to automatically enroll employ-ees in a section 401(k) plan. These finalregulations do not affect any automaticcontribution arrangement that is not in-tended to be a QACA or an EACA.

B. Other issues under section 902 ofPPA ’06 and WRERA

These regulations also reflect the mod-ification to the correction rules for excesscontributions and excess aggregate con-tributions provided in section 902(e) ofPPA ’06. These provisions include: (1)the change in the year of inclusion in in-come for distributed excess contributionsto the year of distribution; and (2) theelimination of the requirement to includegap period income for a distribution thatis made to correct an ADP or ACP fail-ure. However, these regulations do notreflect: (1) the change made by section109(b)(3) of WRERA that eliminates therequirement to include gap period incomefor a distribution of an excess deferralunder section 402(g); (2) the additionaltime to correct excess contributions undera SARSEP that includes an EACA; (3) thetax treatment of excess contributions andearnings thereon under a SARSEP; and(4) guidance on SIMPLE IRA plans thatinclude an EACA.

Effective Date

Except as provided in§§1.401(k)–3(j)(1)(i) and 1.401(m)–2(a)(6)(ii), the final regulations relating

to qualified automatic contributionarrangements (§§1.401(k)–2, 1.401(k)–3,1.401(m)–2, and 1.401(m)–3) apply toplan years beginning on or after January 1,2008. The regulations relating to eligibleautomatic contribution arrangements(§§1.402(c)–2, 1.411(a)–4, 1.414(w)–1,and 54.4979–1) apply for plan yearsbeginning on or after January 1, 2010. Forplan years that begin in 2008, a plan mustoperate in accordance with a good faithinterpretation of section 414(w). For thispurpose, a plan that operates in accordancewith the proposed regulations under§1.414(w)–1 or these final regulationswill be treated as operating in accordancewith a good faith interpretation of section414(w).

Special Analyses

It has been determined that these fi-nal regulations are not a significant regu-latory action as defined in Executive Order12866. Therefore, a regulatory assessmentis not required. It has been determined that5 U.S.C. 533(b) of the Administrative Pro-cedure Act (5 U.S.C. chapter 5) does notapply to these regulations. It is hereby cer-tified that the collection of information inthese final regulations will not have a sig-nificant economic impact on a substantialnumber of small entities. This certificationis based on the fact that most small enti-ties that maintain plans that will be eligiblefor the safe harbor provisions of sections401(k) and 401(m) or the distribution re-lief provisions of section 414(w) currentlyprovide a similar notice with which thisnotice can be combined. Therefore, ananalysis under the Regulatory FlexibilityAct (5 U.S.C. chapter 6) is not required.Pursuant to section 7805(f) of the Inter-nal Revenue Code, the notice of proposedrulemaking preceding this regulation wassubmitted to the Chief Counsel for Advo-cacy of the Small Business Administrationfor comments on its impact on small busi-ness.

Drafting Information

The principal authors of these regula-tions are Dana Barry, William D. Gibbs,and R. Lisa Mojiri-Azad, Office of Di-vision Counsel/Associate Chief Counsel(Tax Exempt and Government Entities).However, other personnel from the IRS

and Treasury Department participated inthe development of these regulations.

* * * * *

Adoption of Amendments to theRegulations

Accordingly, 26 CFR parts 1 and 54 areamended as follows:

Part 1—INCOME TAXES

Paragraph 1. The authority citation forpart 1 is amended to read as follows:

Authority: 26 U.S.C. 401(m)(9) and26 U.S.C. 7805 * * *

Section 1.401(k)–3 is also issued under26 U.S.C. 401(m)(9)

Par. 2. Section 1.401(k)–0 is amendedin:

1. The entry for §1.401(k)–2 isamended by—

a. Adding the entry for §1.401(k)–2(a)(5)(vi) and revising the entry for§1.401(k)–2(b)(2)(iv)(D).

b. Revising entries for §1.401(k)–2(b)(2)(vi)(A) and (b)(2)(vi)(B).

c. Adding an entry for §1.401(k)–2(b)(5)(iii).

2. The entry for §1.401(k)–3 isamended by—

a. Adding entries for §§1.401(k)–3(a)(1), 1.401(k)–3(a)(2) and 1.401(k)–3(a)(3).

b. Adding an entry for §1.401(k)–3(i).c. Adding entries for §§1.401(k)–3

(j)(1) and 1.401(k)–3(j)(2).d. Adding entries for §§1.401(k)–3

(k)(1), 1.401(k)–3(k)(2), 1.401(k)–3 (k)(3)and 1.401(k)–3(k)(4).

The additions and revisions read as fol-lows:

§1.401(k)–0 Table of Contents.

* * * * *

§1.401(k)–2 ADP test.

(a) * * *(5) * * *(vi) Default elective contributions pur-

suant to section 414(w).

* * * * *(b) * * *(2) * * *(iv) * * *(A) * * *

March 23, 2009 701 2009–12 I.R.B.

* * * * *(D) Plan years before 2008.

* * * * *(vi) * * *(A) Corrective distributions for plan

years beginning on or after January 1,2008.

(B) Corrective distributions for planyears beginning before January 1, 2008.

* * * * *(5) * * *(iii) Special rule for eligible automatic

contribution arrangements.

* * * * *

§1.401(k)–3 Safe harbor requirements.

(a) * * *(1) Section 401(k)(12) safe harbor.(2) Section 401(k)(13) safe harbor.(3) Requirements applicable to safe har-

bor contributions.

* * * * *(i) [Reserved].(j) Qualified automatic contribution ar-

rangement.(1) Automatic contribution require-

ment.(i) In general.(ii) Automatic contribution arrange-

ment.(iii) Exception to automatic enrollment

for certain current employees.(2) Qualified percentage.(i) In general.(ii) Minimum percentage requirements.(A) Initial-period requirement.(B) Second-year requirement.(C) Third-year requirement.(D) Later years requirement.(iii) Exception to uniform percentage

requirement.(iv) Treatment of periods without de-

fault contributions.(k) Modifications to contribution re-

quirements and notice requirements forautomatic contribution safe harbor.

(1) In general.(2) Lower matching requirement.(3) Modified nonforfeiture require-

ment.(4) Additional notice requirements.(i) In general.(ii) Additional information.(iii) Timing requirements.Par. 3. Section 1.401(k)–1 is amended

by:

1. Revising paragraph (b)(1)(ii)(C) andadding new paragraph (b)(1)(ii)(D).

2. Adding a new sentence after the fifthsentence in paragraph (e)(7).

The additions and revisions to read asfollows:

§1.401(k)–1 Certain cash or deferredarrangements.

* * * * *(b) * * *(1) * * *(ii) * * *(C) The ADP safe harbor provi-

sions of section 401(k)(13) described in§1.401(k)–3; or

(D) The SIMPLE 401(k) provi-sions of section 401(k)(11) described in§1.401(k)–4.

* * * * *(e) * * *(7) Plan provision requirement. * * *

In addition, a plan that uses the safe harbormethod of section 401(k)(13), as describedin paragraph (b)(1)(ii)(C) of this section,must specify the default percentages thatapply for the plan year and whether thesafe harbor contribution will be the non-elective safe harbor contribution or thematching safe harbor contribution, and isnot permitted to provide that ADP testingwill be used if the requirements for thesafe harbor are not satisfied. * * *

* * * * *Par. 4. Section 1.401(k)–2 is amended

by:1. Adding paragraph (a)(5)(vi).2. Revising paragraphs (b)(2)(iv)(A)

and (b)(2)(iv)(D).3. Removing paragraph (b)(2)(iv)(E).4. Revising paragraph (b)(2)(vi)(A).5. Revising the heading and adding

a new first sentence to paragraph(b)(2)(vi)(B).

6. Removing Examples 3, 4, and 5 ofparagraph (b)(2)(viii).

7. Revising paragraph (b)(4)(iii) andadding paragraph (b)(5)(iii).

The additions and revisions to read asfollows:

§1.401(k)–2 ADP test.

(a) * * *(5) * * *(vi) Default elective contributions pur-

suant to section 414(w). Default elective

contributions made under an eligible au-tomatic contribution arrangement (withinthe meaning of §1.414(w)–1(b)) that aredistributed pursuant to §1.414(w)–1(c) forplan years beginning on or after January1, 2008, are not taken into account underparagraph (a)(4) of this section for the planyear for which the contributions are made,or for any other plan year.

* * * * *(b) * * *(2) * * *(iv) Income allocable to excess contri-

butions—(A) General rule. For plan yearsbeginning on or after January 1, 2008, theincome allocable to excess contributions isequal to the allocable gain or loss throughthe end of the plan year. See paragraph(b)(2)(iv)(D) of this section for rules thatapply to plan years beginning before Jan-uary 1, 2008.

* * * * *(D) Plan years before 2008. For

plan years beginning before January1, 2008, the income allocable to ex-cess contributions is determined under§1.401(k)–2(b)(2)(iv) (as it appeared inthe April 1, 2007, edition of 26 CFR part1).

* * * * *(vi) Tax treatment of corrective distri-

butions—(A) Corrective distributions forplan years beginning on or after January 1,2008. Except as provided in this paragraph(b)(2)(vi), for plan years beginning on orafter January 1, 2008, a corrective distri-bution of excess contributions (and alloca-ble income) is includible in the employee’sgross income for the employee’s taxableyear in which distributed. In addition, thecorrective distribution is not subject to theearly distribution tax of section 72(t). Seeparagraph (b)(5) of this section for addi-tional rules relating to the employer ex-cise tax on amounts distributed more than21/2 months (6 months in the case of cer-tain plans that include an eligible auto-matic contribution arrangement within themeaning of section 414(w)) after the endof the plan year. See also §1.402(c)–2,A–4 for restrictions on rolling over distri-butions that are excess contributions.

(B) Corrective distributions for planyears beginning before January 1, 2008.The tax treatment of corrective distri-butions for plan years beginning beforeJanuary 1, 2008, is determined under

2009–12 I.R.B. 702 March 23, 2009

§1.401(k)–2(b)(2)(vi) (as it appeared inthe April 1, 2007, edition of 26 CFR Part1). * * *

* * * * *(4) * * *(iii) Permitted forfeiture of QMAC. Pur-

suant to section 401(k)(8)(E), a qualifiedmatching contribution is not treated as for-feitable under §1.401(k)–1(c) merely be-cause under the plan it is forfeited in ac-cordance with paragraph (b)(4)(ii) of thissection or §1.414(w)–1(d)(2).

* * * * *(5) * * *(iii) Special rule for eligible automatic

contribution arrangements. In the case ofexcess contributions under a plan that in-cludes an eligible automatic contributionarrangement within the meaning of section414(w), 6 months is substituted for 21/2months in paragraph (b)(5)(i) of this sec-tion. The additional time described in thisparagraph (b)(5)(iii) applies to a distribu-tion of excess contributions for a plan yearbeginning on or after January 1, 2010 onlywhere all the eligible NHCEs and eligibleHCEs are covered employees under the el-igible automatic contribution arrangement(within the meaning of §1.414(w)–1(e)(3))for the entire plan year (or for the portionof the plan year that the eligible NHCEsand eligible HCEs are eligible employees).

* * * * *Par. 5. Section 1.401(k)–3 is amended

by:1. Revising paragraph (a).2. Adding a new sentence at the end of

paragraph (d)(3)(ii).3. Revising the first sentence of para-

graph (e)(1).4. Revising the last sentence of para-

graph (h)(2).5. Revising the first sentence of para-

graph (h)(3).6. Adding paragraphs (i), (j), and (k).The additions and revisions to read as

follows:

§1.401(k)–3 Safe harbor requirements.

(a) ADP test safe harbor—(1) Section401(k)(12) safe harbor. A cash or deferredarrangement satisfies the ADP safe harborprovision of section 401(k)(12) for a planyear if the arrangement satisfies the safeharbor contribution requirement of para-graph (b) or (c) of this section for the plan

year, the notice requirement of paragraph(d) of this section, the plan year require-ments of paragraph (e) of this section, andthe additional rules of paragraphs (f), (g),and (h) of this section, as applicable.

(2) Section 401(k)(13) safe harbor. Forplan years beginning on or after January1, 2008, a cash or deferred arrangementsatisfies the ADP safe harbor provision ofsection 401(k)(13) for a plan year if thearrangement is described in paragraph (j)of this section and satisfies the safe harborcontribution requirement of paragraph (k)of this section for the plan year, the noticerequirement of paragraph (d) of this sec-tion (modified to include the informationset forth in paragraph (k)(4) of this sec-tion), the plan year requirements of para-graph (e) of this section, and the additionalrules of paragraphs (f), (g), and (h) of thissection, as applicable. A cash or deferredarrangement that satisfies the requirementsof this paragraph (a)(2) is referred to as aqualified automatic contribution arrange-ment.

(3) Requirements applicable to safeharbor contributions. Pursuant tosection 401(k)(12)(E)(ii) and section401(k)(13)(D)(iv), the safe harbor con-tribution requirement of paragraph (b),(c), or (k) of this section must be satis-fied without regard to section 401(l). Thecontributions made under paragraph (b)or (c) of this section (and the correspond-ing contributions under paragraph (k) ofthis section) are referred to as safe harbornonelective contributions and safe harbormatching contributions.

* * * * *(d) * * *(3) * * *(ii) Deemed satisfaction of timing re-

quirement. * * * If it is not practicablefor the notice to be provided on or beforethe date specified in the plan that an em-ployee becomes eligible, the notice willnonetheless be treated as provided timelyif it is provided as soon as practicable af-ter that date and the employee is permittedto elect to defer from all types of compen-sation that may be deferred under the planearned beginning on the date the employeebecomes eligible.

(e) Plan year requirement—(1) Gen-eral rule. Except as provided in this para-graph (e) or in paragraph (f) of this sec-tion, a plan will fail to satisfy the require-

ments of sections 401(k)(12), 401(k)(13),and this section unless plan provisions thatsatisfy the rules of this section are adoptedbefore the first day of the plan year and re-main in effect for an entire 12-month planyear. * * *

* * * * *(h) * * *(2) Use of safe harbor nonelective

contributions to satisfy other discrimi-nation tests. * * * However, pursuantto section 401(k)(12)(E)(ii) and section401(k)(13)(D)(iv), to the extent they areneeded to satisfy the safe harbor contribu-tion requirement of paragraph (b) of thissection, safe harbor nonelective contribu-tions may not be taken into account underany plan for purposes of section 401(l)(including the imputation of permitteddisparity under §1.401(a)(4)–7).

(3) Early participationrules. Section 401(k)(3)(F) and§1.401(k)–2(a)(1)(iii)(A), which providean alternative nondiscrimination rulefor certain plans that provide for earlyparticipation, do not apply for purposesof section 401(k)(12), section 401(k)(13),and this section. * * *

* * * * *(i) [Reserved].(j) Qualified automatic contribution

arrangement—(1) Automatic contributionrequirement—(i) In general. A cash ordeferred arrangement is described in thisparagraph (j) if it is an automatic contribu-tion arrangement described in paragraph(j)(1)(ii) of this section where the defaultelection under that arrangement is a con-tribution equal to the qualified percentagedescribed in paragraph (j)(2) of this sec-tion multiplied by the eligible employee’scompensation from which elective con-tributions are permitted to be made underthe cash or deferred arrangement. Forplan years beginning on or after January1, 2010, the compensation used for thispurpose must be safe harbor compensationas defined under paragraph (b)(2) of thissection.

(ii) Automatic contribution arrange-ment. An automatic contribution arrange-ment is a cash or deferred arrangementwithin the meaning of §1.401(k)–1(a)(2)that provides that, in the absence of aneligible employee’s affirmative election,a default election applies under which theemployee is treated as having made an

March 23, 2009 703 2009–12 I.R.B.

election to have a specified contributionmade on his or her behalf under the plan.The default election begins to apply withrespect to an eligible employee no earlierthan a reasonable period of time after re-ceipt of the notice describing the automaticcontribution arrangement. The defaultelection ceases to apply with respect toan eligible employee for periods of timewith respect to which the employee hasan affirmative election that is currently ineffect to—

(A) Have elective contributions madein a different amount on his or her behalf(in a specified amount or percentage ofcompensation); or

(B) Not have any elective contributionsmade on his or her behalf.

(iii) Exception to automatic enrollmentfor certain current employees. An auto-matic contribution arrangement will notfail to be a qualified automatic contri-bution arrangement merely because thedefault election provided under paragraph(j)(1)(i) of this section is not applied to anemployee who was an eligible employeeunder the cash or deferred arrangement (ora predecessor arrangement) immediatelyprior to the effective date of the qualifiedautomatic contribution arrangement andon that effective date had an affirmativeelection in effect (that remains in effect)to—

(A) Have elective contributions madeon his or her behalf (in a specified amountor percentage of compensation); or

(B) Not have elective contributionsmade on his or her behalf.

(2) Qualified percentage—(i) In gen-eral. A percentage is a qualified percent-age only if it—

(A) Is uniform for all employees (ex-cept to the extent provided in paragraph(j)(2)(iii) of this section);

(B) Does not exceed 10 percent; and(C) Satisfies the minimum percentage

requirements of paragraph (j)(2)(ii) of thissection.

(ii) Minimum percentage require-ments—(A) Initial-period requirement.The minimum percentage requirementof this paragraph (j)(2)(ii)(A) is satisfiedonly if the percentage that applies for theinitial period is at least 3 percent. For thispurpose, the initial period begins whenthe employee first has contributions madepursuant to a default election under anarrangement that is intended to be a qual-

ified automatic contribution arrangementfor a plan year and ends on the last day ofthe following plan year.

(B) Second-year requirement. Theminimum percentage requirement of thisparagraph (j)(2)(ii)(B) is satisfied only ifthe percentage that applies for the planyear immediately following the last daydescribed in paragraph (j)(2)(ii)(A) of thissection is at least 4 percent.

(C) Third-year requirement. The mini-mum percentage requirement of this para-graph (j)(2)(ii)(C) is satisfied only if thepercentage that applies for the plan yearimmediately following the plan year de-scribed in paragraph (j)(2)(ii)(B) of thissection is at least 5 percent.

(D) Later years requirement. A per-centage satisfies the minimum percentagerequirement of this paragraph (j)(2)(ii)(D)only if the percentage that applies for allplan years following the plan year de-scribed in paragraph (j)(2)(ii)(C) of thissection is at least 6 percent.

(iii) Exception to uniform percentagerequirement. A plan does not fail to sat-isfy the uniform percentage requirementof paragraph (j)(2)(i)(A) of this sectionmerely because—

(A) The percentage varies based onthe number of years (or portions of years)since the beginning of the initial period foran eligible employee;

(B) The rate of elective contributionsunder a cash or deferred election that is ineffect for an employee immediately priorto the effective date of the default percent-age under the qualified automatic contri-bution arrangement is not reduced;

(C) The rate of elective contributionsis limited so as not to exceed the lim-its of sections 401(a)(17), 402(g) (deter-mined with or without catch-up contribu-tions described in section 402(g)(1)(C) or402(g)(7)), and 415; or

(D) The default election provided underparagraph (j)(1)(i) of this section is not ap-plied during the period an employee is notpermitted to make elective contributions inorder for the plan to satisfy the require-ments of §1.401(k)–3(c)(6)(v)(B).

(iv) Treatment of periods without de-fault contributions. The minimum per-centages described in paragraph (j)(2)(ii)of this section are based on the date theinitial period begins, regardless of whetherthe employee is eligible to make electivecontributions under the plan after that date.

Thus, for example, if an employee is ineli-gible to make contributions under the planfor 6 months because the employee hada hardship withdrawal and the 6-monthperiod includes a date as of which thedefault minimum percentage is increased,then the default percentage must reflectthat increase when the employee is permit-ted to resume contributions. However, forpurposes of determining the date the initialperiod described in paragraph (j)(2)(ii)(A)of this section begins, a plan is permittedto treat an employee who for an entire planyear did not have contributions made pur-suant to a default election under the qual-ified automatic contribution arrangementas if the employee had not had such con-tributions made for any prior plan year aswell.

(k) Modifications to contribution re-quirements and notice requirements forautomatic contribution safe harbor—(1)In general. A cash or deferred arrange-ment satisfies the contribution require-ments of this paragraph (k) only if itsatisfies the contribution requirements ofeither paragraph (b) or (c) of this section,as modified by the rules of paragraphs(k)(2) and (k)(3) of this section. In ad-dition, a cash or deferred arrangementsatisfies the notice requirement of section401(k)(13)(E) only if the notice satisfiesthe additional requirements of paragraph(k)(4) of this section.

(2) Lower matching requirement. In ap-plying the requirement of paragraph (c) ofthis section in the case of a cash or deferredarrangement, the basic matching formulais modified so that each eligible NHCEmust receive the sum of—

(i) 100 percent of the employee’s elec-tive contributions that do not exceed 1 per-cent of the employee’s safe harbor com-pensation; and

(ii) 50 percent of the employee’s elec-tive contributions that exceed 1 percent ofthe employee’s safe harbor compensationbut that do not exceed 6 percent of the em-ployee’s safe harbor compensation.

(3) Modified nonforfeiture requirement.A cash or deferred arrangement describedin paragraph (j) of this section will not failto satisfy the requirements of paragraph (b)or (c) of this section, as applicable, merelybecause the safe harbor contributions arenot qualified nonelective contributions orqualified matching contributions providedthat—

2009–12 I.R.B. 704 March 23, 2009

(i) The contributions are subject tothe withdrawal restrictions that applyto QNECs and QMACs, as set forth in§1.401(k)–1(d); and

(ii) Any employee who has completed2 years of service (within the meaning ofsection 411(a)) has a nonforfeitable rightto the account balance attributable to thesafe harbor contributions.

(4) Additional notice requirements—(i)In general. A notice satisfies the require-ments of this paragraph (k)(4) only if itincludes the additional information de-scribed in paragraph (k)(4)(ii) of this sec-tion and satisfies the timing requirementsof paragraph (k)(4)(iii) of this section.

(ii) Additional information. A noticesatisfies the additional information re-quirement of this paragraph (k)(4)(ii) onlyif it explains—

(A) The level of elective contributionswhich will be made on the employee’s be-half if the employee does not make an af-firmative election;

(B) The employee’s right under the ar-rangement to elect not to have electivecontributions made on the employee’s be-half (or to elect to have such contributionsmade in a different amount or percentageof compensation); and

(C) How contributions under the ar-rangement will be invested (including, inthe case of an arrangement under which theemployee may elect among 2 or more in-vestment options, how contributions willbe invested in the absence of an investmentelection by the employee).

(iii) Timing requirements. A notice sat-isfies the timing requirements of this para-graph (k)(4)(iii) only if it is provided suf-ficiently early so that the employee has areasonable period of time after receipt ofthe notice to make the elections describedunder paragraph (k)(4)(ii)(B) and (C) ofthis section. However, the requirement inthe preceding sentence that an employeehave a reasonable period of time after re-ceipt of the notice to make an alternativeelection does not permit a plan to make thedefault election effective any later than theearlier of—

(A) The pay date for the second payrollperiod that begins after the date the noticeis provided; and

(B) The first pay date that occurs at least30 days after the notice is provided.

Par. 6. Section 1.401(k)–6 is amendedby revising the last sentence in the defini-

tion of “qualified matching contributions(QMACs)” to read as follows:

§1.401(k)–6 Definitions.

* * * * *Qualified matching contribu-

tions (QMACs). * * * See also§1.401(k)–2(b)(4)(iii) for a rule providingthat a matching contribution does not failto qualify as a QMAC solely because itis forfeitable under section 411(a)(3)(G)as a result of being a matching contribu-tion with respect to an excess deferral,excess contribution, or excess aggregatecontribution, or it is forfeitable under§1.414(w)–1(d)(2).

* * * * *Par. 7. Section 1.401(m)–0 is amended

in:1. The entry for §1.401(m)–2 by—a. Revising §1.401(m)–2(b)(2)(iv)(D).b. Adding an entry for §1.401(m)–2

(b)(4)(iii).c. Revising the entries for

§1.401(m)–2(b)(2)(vi)(A) and (b)(2)(vi)(B).

d. Adding an entry for §1.401(m)–2(b)(4)(iii).

2. The entry for §1.401(m)–3 by re-vising the entries for §§1.401(m)–3(a)(1),1.401(m)–3(a)(2) and 1.401(m)–3(a)(3).

The additions and revisions read as fol-lows:

§1.401(m)–0 Table of Contents.

* * * * *

§1.401(m)–2 ACP Test.

* * * * *(b) * * *(2) * * *(iv) * * *(A) * * *

* * * * *(D) Plan years before 2008.(E) Allocable income for recharacter-

ized elective contributions.

* * * * *(vi) * * *(A) Corrective distributions for plan

years beginning on or after January 1,2008.

(B) Corrective distributions for planyears beginning before January 1, 2008.

* * * * *

(4) * * *(iii) Special rule for eligible automatic

contribution arrangements.

* * * * *

§1.401(m)–3 Safe Harbor Requirements.

(a) * * *(1) Section 401(m)(11) safe harbor.(2) Section 401(m)(12) safe harbor.(3) Requirements applicable to safe har-

bor contributions.

* * * * *Par. 8. Section 1.401(m)–1 is amended

by:1. Revising paragraph (b)(1)(iii) and

adding paragraph (b)(1)(iv).2. Revising the last sentence of para-

graph (b)(4)(iii)(B).3. Revising the fifth sentence of para-

graph (c)(2).The additions and revisions read as fol-

lows:

§1.401(m)–1 Employee contributions andmatching contributions.

* * * * *(b) * * *(1) * * *(iii) The ACP safe harbor provi-

sions of section 401(m)(12) described in§1.401(m)–3; or

(iv) The SIMPLE 401(k) provisions ofsections 401(k)(11) and 401(m)(10) de-scribed in §1.401(k)–4.

* * * * *(4) * * *(iii) * * *(B) Arrangements with inconsistent

ACP testing methods. * * * Similarly, anemployer may not aggregate a plan (withinthe meaning of §1.410(b)–7) that is usingthe ACP safe harbor provisions of section401(m)(11) or 401(m)(12) and anotherplan that is using the ACP test of section401(m)(2).

* * * * *(c) * * *(2) Plan provision requirement.

* * * Similarly, a plan that uses the safeharbor method of section 401(m)(11) or401(m)(12), as described in paragraphs(b)(1)(ii) and (b)(1)(iii) of this section,must specify the default percentagesthat apply for the plan year and whetherthe safe harbor contribution will be the

March 23, 2009 705 2009–12 I.R.B.

nonelective safe harbor contribution or thematching safe harbor contribution, and isnot permitted to provide that ACP testingwill be used if the requirements for thesafe harbor are not satisfied. * * *

* * * * *Par. 9. Section 1.401(m)–2 is amended

by:1. Revising the first and second sen-

tences of paragraph (a)(5)(iv).2. Revising paragraph (a)(5)(v).3. Adding a new sentence at the end of

paragraph (a)(6)(ii).4. Revising paragraphs (b)(2)(iv)(A)

and (b)(2)(iv)(D).5. Removing paragraph (b)(2)(iv)(E).6. Redesignating paragraph

(b)(2)(iv)(F) as paragraph (b)(2)(iv)(E).7. Revising paragraph (b)(2)(vi)(A).8. Adding a new sentence to the begin-

ning of paragraph (b)(2)(vi)(B).9. Adding paragraph (b)(4)(iii).The additions and revisions to read as

follows:

§1.401(m)–2 ACP test.

(a) * * * * *(5) * * * * *(iv) Matching contributions taken into

account. A plan that satisfies the ACP safeharbor requirements of section 401(m)(11)or 401(m)(12) for a plan year but nonethe-less must satisfy the requirements of thissection because it provides for employeecontributions for such plan year is permit-ted to apply this section disregarding allmatching contributions with respect to alleligible employees. In addition, a plan thatsatisfies the ADP safe harbor requirementsof §1.401(k)–3 for a plan year using qual-ified matching contributions but does notsatisfy the ACP safe harbor requirementsof section 401(m)(11) or 401(m)(12) forsuch plan year is permitted to apply thissection by excluding matching contribu-tions with respect to all eligible employ-ees that do not exceed 4 percent (31/2 per-cent in the case of a plan that satisfies theADP safe harbor under section 401(k)(13))of each employee’s compensation. * * *

(v) Treatment of forfeited matchingcontributions. A matching contributionthat is forfeited because the contributionto which it relates is treated as an excesscontribution, excess deferral, excess ag-gregate contribution, or default elective

contribution that is distributed under sec-tion 414(w), is not taken into account forpurposes of this section.

* * * * *(6) * * * * *(ii) Elective contributions taken into ac-

count under the ACP test. * * * In addition,for plan years ending on or after Novem-ber 8, 2007, elective contributions whichare not permitted to be taken into accountfor the ADP test for the plan year under§1.401(k)–2(a)(5)(ii), (iii), (v), or (vi) arenot permitted to be taken into account forthe ACP test.

* * * * *(b) * * * * *(2) * * * * *(iv) Income allocable to excess aggre-

gate contributions—(A) General rule. Forplan years beginning on or after January 1,2008, the income allocable to excess ag-gregate contributions is equal to the alloca-ble gain or loss through the end of the planyear. See paragraph (b)(2)(iv)(D) of thissection for rules that apply to plan yearsbeginning before January 1, 2008.

* * * * *(D) Plan years before 2008. For plan

years beginning before January 1, 2008,the income allocable to excess aggre-gate contributions is determined under§1.401(m)–2(b)(2)(iv) (as it appeared inthe April 1, 2007, edition of 26 CFR part1).

* * * * *(vi) Tax treatment of corrective distri-

butions—(A) Corrective distributions forplan years beginning on or after January1, 2008. Except as otherwise providedin this paragraph (b)(2)(vi), for plan yearsbeginning on or after January 1, 2008, acorrective distribution of excess aggregatecontributions (and allocable income) is in-cludible in the employee’s gross income inthe taxable year of the employee in whichdistributed. The portion of the distribu-tion that is treated as an investment in thecontract and is therefore not subject to taxunder section 72 is determined without re-gard to any plan contributions other thanthose distributed as excess aggregate con-tributions. Regardless of when the correc-tive distribution is made, it is not subject tothe early distribution tax of section 72(t).See paragraph (b)(4) of this section for ad-

ditional rules relating to the employer ex-cise tax on amounts distributed more than21/2 months (6 months in the case of cer-tain plans that include an eligible auto-matic contribution arrangement within themeaning of section 414(w)) after the endof the plan year. See also §1.402(c)–2,A–4, prohibiting rollover of distributionsthat are excess aggregate contributions.

(B) Corrective distributions for planyears beginning before January 1, 2008.The tax treatment of corrective distri-butions for plan years beginning beforeJanuary 1, 2008, is determined under§1.401(m)–2(b)(2)(vi) (as it appeared inthe April 1, 2007, edition of 26 CFR Part1). * * *

(4) * * *(iii) Special rule for eligible auto-

matic contribution arrangements. In thecase of excess aggregate contributionsunder a plan that includes an eligible au-tomatic contribution arrangement (withinthe meaning of section 414(w)), 6 monthsis substituted for 21/2 months in paragraph(b)(4)(i) of this section. The additionaltime described in this paragraph (b)(4)(iii)applies to a distribution of excess aggre-gate contributions for a plan year begin-ning on or after January 1, 2010 onlywhere all the eligible NHCEs and eligibleHCEs are covered employees under the el-igible automatic contribution arrangement(within the meaning of §1.414(w)–1(e)(3))for the entire plan year (or for the portionof the plan year that the eligible NHCEsand eligible HCEs are eligible employees).

* * * * *Par. 10. Section 1.401(m)–3 is

amended by:1. Revising paragraph (a).2. Revising the first sentences of para-

graphs (f)(1) and (j)(3).The revisions read as follows:

§1.401(m)–3 Safe harbor requirements.

(a) ACP test safe harbor—(1) Section401(m)(11) safe harbor. Matching contri-butions under a plan satisfy the ACP safeharbor provisions of section 401(m)(11)for a plan year if the plan satisfies the safeharbor contribution requirement of para-graph (b) or (c) of this section for the planyear, the limitations on matching contribu-tions of paragraph (d) of this section, thenotice requirement of paragraph (e) of this

2009–12 I.R.B. 706 March 23, 2009

section, the plan year requirements of para-graph (f) of this section, and the additionalrules of paragraphs (g), (h) and (j) of thissection, as applicable.

(2) Section 401(m)(12) safe harbor.For a plan year beginning on or afterJanuary 1, 2008, matching contributionsunder a plan satisfy the ACP safe harborprovisions of section 401(m)(12) for aplan year if the matching contributionsare made with respect to an automaticcontribution arrangement described inparagraph §1.401(k)–3(j) that satisfies thesafe harbor requirements of §1.401(k)–3,the limitations on matching contributionsof paragraph (d) of this section, the no-tice requirement of paragraph (e) of thissection, the plan year requirements ofparagraph (f) of this section, and the addi-tional rules of paragraphs (g), (h) and (j)of this section, as applicable.

(3) Requirements applicable to safeharbor contributions. Pursuant to sections401(k)(12)(E)(ii) and 401(k)(13)(D)(iv),the safe harbor contribution requirementof paragraph (b) or (c) of this section and§1.401(k)–3(k) must be satisfied withoutregard to section 401(l). The contributionsmade under paragraphs (b) and (c) of thissection and §1.401(k)–3(k) are referred toas safe harbor nonelective contributionsand safe harbor matching contributions.

* * * * *(f) Plan year requirement—(1) General

rule. Except as provided in this paragraph(f) or in paragraph (g) of this section, a planwill fail to satisfy the requirements of sec-tion 401(m)(11), section 401(m)(12), andthis section unless plan provisions that sat-isfy the rules of this section are adopted be-fore the first day of that plan year and re-main in effect for an entire 12-month planyear. * * *

* * * * *(j) * * *(3) Early participation rules.

Section 401(m)(5)(C) and§1.401(m)–2(a)(1)(iii)(A), which providean alternative nondiscrimination rulefor certain plans that provide for earlyparticipation, do not apply for purposes ofsection 401(m)(11), section 401(m)(12),and this section. * * *

* * * * *Par. 11. Section 1.402(c)–2, A–4, is

amended by redesignating paragraph (h)as (j), adding a new paragraph (h), and

adding and reserving paragraph (i) to readas follows:

§1.402(c)–2 Eligible rolloverdistributions, questions and answers.

* * * * *A–4 * * *(h) A distribution that is a permissi-

ble withdrawal from an eligible automaticcontribution arrangement within the mean-ing of section 414(w).

(i) [Reserved].

* * * * *Par. 12. Section 1.411(a)–4 is amended

by revising paragraph (b)(7) to read as fol-lows:

§1.411(a)–4 Forfeitures, suspensions, etc.

* * * * *(b) * * *(7) Certain matching contributions.

A matching contribution (within themeaning of section 401(m)(4)(A) and§1.401(m)–1(a)(2)) is not treated as for-feitable even if under the plan it may beforfeited under §1.401(m)–2(b)(1) be-cause the contribution to which it relatesis treated as an excess contribution (withinthe meaning of §§1.401(k)–2(b)(2)(ii) and1.401(k)–6), excess deferral (within themeaning of §1.402(g)–1(e)(1)(iii)), ex-cess aggregate contribution (within themeaning of §1.401(m)–5), or a defaultelective contribution (within the mean-ing of §1.414(w)–1(e)) that is withdrawnin accordance with the requirements of§1.414(w)–1(c).

* * * * *Par. 13. Section 1.414(w)–1 is added to

read as follows:

§1.414(w)–1 Permissible Withdrawalsfrom Eligible Automatic ContributionArrangements.

(a)