Safe Harbor

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What is a Safe Harbor Plan?

A safe harbor 401(k) plan ensures all eligible plan participants receive an employer contribution. In exchange for making the fixed employer contribution, employers get a “pass” on 401(k) non-discrimination testing. The employer contribution is a fixed, mandatory contribution. In most cases, that employer contribution is required to be immediately 100% vested.

How Do Employers Know What Their Contribution Should Be?

Here are the formulas that will help you figure out this exact contribution number!

Basic Match
Company matches 100% on the first 3% of deferred compensation, plus a 50% match on the next 2% of deferred compensation.

1.
Enhanced Match
Company match that’s at least as generous as the basic match at each tier of the match formula. A common formula is 100% match on the first 4% of deferred compensation.

2.
Non-Elective
Company contributes 3% or more of each employee’s compensation, regardless of whether the employee also makes elective deferrals.

3.

Employees must also be given a notice of their plan, this is called a Summary Plan Description, or and SPD. New employees must receive a copy of their plan sponsor’s latest Summary Plan Description within 90 days after becoming covered by the plan.

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Both the traditional and safe harbor plans are for employers of any size and can be combined with other retirement plans.

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Safe Harbor

What is a Safe Harbor Plan?

How Do Employers Know What Their Contribution Should Be?

Basic Match

1.

Enhanced Match

2.

Non-Elective

3.

Employees must also be given a notice of their plan, this is called a Summary Plan Description, or and SPD. New employees must receive a copy of their plan sponsor’s latest Summary Plan Description within 90 days after becoming covered by the plan.

Both the traditional and safe harbor plans are for employers of any size and can be combined with other retirement plans.

Connect With Us

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