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. ($18,000 for 2015, plus $6,000 Catch-up)
General Requirements for Safe Harbor Contributions
- Safe Harbor
contributions must be 100% vested.
- They are not available for hardship
withdrawals or in-service withdrawals before attaining age 59 ½.
Harbor contributions cannot have allocation requirements, such as, 1,000 hours
of service or required to be employed on the last day of the plan year.
- All eligible participants must receive a written notice describing the safe
harbor provisions between 30 and 90 days before the beginning of each plan year
the safe harbor provisions are in effect.
Employers can choose between
two types of safe harbor contributions: a nonelective contribution or a matching
The nonelective contribution
requires the employer to contribute 3% of each eligible employee’s compensation
for the year.
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 that is contributed and 50% of the next 2% of pay that is
- Enhanced Match: 100% of the first 4% of pay that is
contributed to the plan
A safe harbor 401(k) plan can provide a variety
of benefits to employers. Please contact our office today if you would like to
discuss how one of the safe harbor contribution options might benefit your plan.