Safe Harbor 401(k) Plans have grown rapidly over the years. The safe harbor feature has become one of the most common components in designing a retirement plan. Although the employer is required to make a mandatory contribution, this type of plan avoids the ADP discrimination testing, allowing all highly compensated employees to contribute the maximum 402(g) limit for the calendar year. ($23,500 for 2025, plus $7,500 Catch-up)
Highly Compensated
| Name |
Salary |
Deferral |
Catch Up |
3% Safe Harbor |
TOTAL |
| HCE 1 (over 50) |
$350,000 |
$23,500 |
$7,500 |
$10,500 |
$41,500 |
| HCE 2 |
$350,000 |
$23,500 |
$0 |
$10,500 |
$34,000 |
| |
Total |
$47,000 |
$7,500 |
$21,000 |
$74,200 |
Non-Highly Compensated
| Name |
Salary |
Deferral |
3% Safe Harbor |
| HCE 1 |
$30,000 |
$1,800 |
$900 |
| HCE 2 |
$20,000 |
$0 |
$600 |
| |
Total |
$1,800 |
$1,500 |
SAFE HARBOR 401(K) PLANS
The required contribution may be a matching contribution or a profit sharing contribution:
Profit Sharing Contribution
3% contribution of each eligible participant’s compensation for the plan year.
Matching Contribution
Employers can choose a basic or enhanced match formula. A safe harbor matching contribution is allocated only to employees who defer their own pay to the plan.
- Basic Match: 100% of the first 3% of pay contributed and 50% of the next 2% of pay contributed
- Enhanced Match: 100% of the first 4% of pay that is contributed to the plan
BEST OF ALL…If your plan is TOP HEAVY, the 3% profit sharing safe harbor contribution can satisfy your mandatory Top Heavy Minimum requirement, in addition to eliminating the ADP test!
Please note that all contributions are 100% vested and no hour requirement or last day provision may apply.