Safe Harbor Plans Overview
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A Safe-Harbor Plan is a 401(k) plan where the employer is required to make a mandatory match contribution or a non-elective contribution of 3% of each employee’s compensation. Safe-Harbor Plans allow the employer to avoid certain IRS nondiscrimination rules and the safe harbor contributions can not be subject to a vesting schedule.
Employers that may benefit most from a Safe-Harbor Plan design include (a) employers with highly paid employees (HCE) unable to contribute the full 401(k) dollar limit because of low participation rates of the lower-paid employees (NHCE), (b) employers already making employer contributions at or near the safe harbor levels, (c) employers required to make top-heavy minimum contributions and (d) employers with relatively low employee turnover. |
Who May Adopt?
Employers of all sizes.
Employee Eligibility Requirements
Maximum Requirements: Age 21 and 1 year (1,000 hours) of service. Less restrictive requirements are allowed.
Employee Deferral Contributions
Please see retirement plan limits
Employer Matching/QNEC Contributions
Employer is required to make either a 4% matching contribution or a SHNEC contribution of 3% of each employee's compensation. Plans can not require eligible employees to be employed on the last day of the plan year or complete a number of hours in a plan year to get these contributions.
Employer Profit Sharing Contributions
Discretionary formulas allowed based on either non-integrated (comp-to-comp) formula or integrated (social security wage base) formula. Plans may also provide that employees must be employed on the last day of the plan year and must work up to 1,000 hours to receive a contribution.
Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages. Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).
Are Catch-up Contributions Allowed?
Yes, please see retirement plan limits.
Contribution Deadlines
Employee deferral contributions must be deposited by the 15th business day following the month of deferral, or sooner if administratively feasible - the DOL has indicated that contributions made within 7 days will not be considered late. Employer contributions must be made by the employer’s tax filing deadline, including extensions.
Vesting Schedule
Employee deferral contributions are always 100% vested. Employer matching/SHNEC contributions are always 100% vested. Employer contributions may be subject to a vesting schedule. Examples of possible vesting schedules include a three (3) year cliff (0,0,100) or a six (6) year graded (0,20,40,60,80,100).
Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement. Plans may elect to allow hardship or in-service withdrawals. Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.
Administration & Reporting Requirements
Top-heavy and non-discrimination testing required. Form 5500 filing required. Fidelity Bond required.
Employers of all sizes.
Employee Eligibility Requirements
Maximum Requirements: Age 21 and 1 year (1,000 hours) of service. Less restrictive requirements are allowed.
Employee Deferral Contributions
Please see retirement plan limits
Employer Matching/QNEC Contributions
Employer is required to make either a 4% matching contribution or a SHNEC contribution of 3% of each employee's compensation. Plans can not require eligible employees to be employed on the last day of the plan year or complete a number of hours in a plan year to get these contributions.
Employer Profit Sharing Contributions
Discretionary formulas allowed based on either non-integrated (comp-to-comp) formula or integrated (social security wage base) formula. Plans may also provide that employees must be employed on the last day of the plan year and must work up to 1,000 hours to receive a contribution.
Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages. Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).
Are Catch-up Contributions Allowed?
Yes, please see retirement plan limits.
Contribution Deadlines
Employee deferral contributions must be deposited by the 15th business day following the month of deferral, or sooner if administratively feasible - the DOL has indicated that contributions made within 7 days will not be considered late. Employer contributions must be made by the employer’s tax filing deadline, including extensions.
Vesting Schedule
Employee deferral contributions are always 100% vested. Employer matching/SHNEC contributions are always 100% vested. Employer contributions may be subject to a vesting schedule. Examples of possible vesting schedules include a three (3) year cliff (0,0,100) or a six (6) year graded (0,20,40,60,80,100).
Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement. Plans may elect to allow hardship or in-service withdrawals. Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.
Administration & Reporting Requirements
Top-heavy and non-discrimination testing required. Form 5500 filing required. Fidelity Bond required.