What is a “Safe Harbor” plan?
{ back to top } A Safe Harbor plan is a plan design that allows the company to be “deemed to satisfy” the ADP/ACP and top heavy non-discrimination tests. This means that owners and highly compensated employees may be able to make larger contributions to their own accounts than they would have been able to make if they had to pass the tests. The first Safe harbor plan design available to you is a matching Safe Harbor. With this design, you make a basic matching contribution equal to 100% of the first 3% of salary and 50% of the next 2% deferred by your employees. This means that if a participant defers 5% they will receive a 4% match. Many employers choose to make an enhanced match equal to 100% of the first 4% of salary deferred by their employees. The second Safe Harbor plan design is the non-elective (profit sharing) Safe Harbor. With the non-elective Safe Harbor, you make a contribution of 3% of pay for all eligible employees. Safe Harbor elections must be made prior to the plan yea
A Safe Harbor Plan is a plan that uses a Safe Harbor contribution in order to automatically pass 401(k) testing. There are two basic types of Safe Harbor contributions: Safe Harbor Profit Sharing (SH PS) and Safe Harbor Matching (SH Match). All Safe Harbor contributions are automatically 100% vested to the participants upon deposit. A SH PS plan uses a contribution of at least 3% of salary across the board to every employee who was eligible to defer during the plan year. A SH Match plan normally employs a contribution of 100% of compensation on the first 3% of deferrals plus 50% of compensation on the next 2% of deferrals. Both types of contributions can be increased, within limits. In order to adopt a Safe Harbor plan, notices must be distributed to participants between 30 and 90 days before the beginning of the plan year.
