Safe Harbor Plan 401(k) Plans


Charles Rosenberg

Vice President, Pension Sales & Service
“Safe harbor 401(k) plans offer numerous advantages over traditional 401(k) plans which is why close to 50% of our 401(k) clients are safe harbor plans.”

Safe harbor 401(k) is one of the most significant pieces of retirement legislation that has emerged in the last several years; it is also one of the most popular 401(k) plan designs amongst small business owners.

A safe harbor 401(k) plan is very similar to a traditional 401(k) plan; the primary difference is how a safe harbor plan satisfies the IRC’s nondiscrimination requirements. A safe harbor plan can be an attractive alternative for employers, particularly for small business owners, which might have difficulty satisfying nondiscrimination testing, meeting top heavy requirements or maximizing their contributions due to a low rate of employee participation. Also, a company’s owner(s) and other highly paid employees can contribute the maximum to the 401(k) portion of the plan (pre-taxed) which helps offset the cost of the contributions. As an added benefit, employers who establish a safe harbor plan provide an incentive for employees to contribute to their own retirement – as employees see their retirement funds grow as a result of their employer’s contributions, they may be more likely to take on a proactive role in their own retirement planning as well.

Important conditions must be met in order to establish a safe harbor retirement plan, including a required, non-elective employer contribution that is 100% immediately vested and annual written notification to all participants.

It is imperative for a plan sponsor to work with his/her pension consultant each year to ensure the plan design is in its optimal form; and, if necessary, amendments may be implemented so that the plan continues to satisfy the company’s best interests and needs.

The link below provides more details and the specific requirements on safe harbor plans.

Safe Harbor 401(k) Plans – Meeting the Requirements