The Safe Harbor Deadline is Quickly Approaching

The Safe Harbor Deadline is Quickly Approaching

| September 01, 2017

Implement Your New Plan Design Before December 1st!

A Safe Harbor 401(k) Plan is a way to design your plan to automatically pass the Non-discrimination tests or avoids them altogether, guaranteeing that the highly compensated employees can make the maximum contribution for the plan year. For your plan to achieve a Safe Harbor status it requires an employer to make contributions.

There are several ways a plan can satisfy the contributions requirements.

  1. Employer matches 100% of the first 3% of compensation, plus 50% on the next 2% of compensation or total of 4%.

  2. Employer matches 100% on the first 4% of compensation.

  3. Employer contributes 3% of compensation to all eligible employees.

  4. Employees are automatically enrolled into the plan either at 3% and escalated at 1% annually or 6% and the employer contributes 100% on the first 1% of compensation and 50% on the next 5% of compensation or total of 3.5%. This is called a Qualified Automatic Contribution Arrangement Safe Harbor Plan (QACA)

Contributions are immediately vested for standard safe harbor plans and there is an optional 2 year cliff schedule for a QACA safe harbor plan.

Existing plans are required to adopt the safe harbor plan provisions before the end of this year & provide advanced notification in order to have it in place for the beginning of next year.