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.
• Safe 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 contribution.

Nonelective Contribution
The nonelective contribution requires the employer to contribute 3% of each eligible employee’s compensation for the 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 that is contributed and 50% of the next 2% of pay that is contributed
• 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.