Safe Harbor 401(k)s
A safe harbor 401(k) plan is an employer-sponsored retirement plan that enables small business owners to avoid IRS annual compliance tests, and to ensure equal benefits and access to its 401(k) plan for all of its employees.
The Safe Harbor 401(k) Plan is a defined contribution plan similar to a traditional 401(k) Plan with the following variations:
- The safe harbor plan design allows for all employees, including HCEs, to maximize their personal accounts.
- The benefit of this design is that it alleviates the need for year-end compliance testing generally required for a 401(k) plan.
- The Employer must make either an “Employer Match” of a specified formula OR an Employer “Profit Sharing” Contribution of a specified percentage.
- The employer contribution, match or profit sharing, must be 100% vested immediately.
- All eligible employees must be notified annually, at least 30 days but not more than 90 days prior to the beginning of the following plan year, of the plan sponsor’s intent to be a safe harbor plan for the year.