Safe Harbor 401(K) Plan
The Safe Harbor 401(k) plan is one of the most flexible, low maintenance
retirement plans available. If you like the feature of a 401(k) without
the cumbersome nondiscrimination plus top-heavy testing requirements
that accompany it, you may find a Safe Harbor 401(k) plan to be a
viable alternative. Safe Harbor 401(k) plans may be suitable for companies
with highly compensated employees who are limited in how much they
may contribute to a 401(k) because non-highly compensated employees
are not participating or contributing enough to the plan.
Key Benefits:
- Highly compensated employees can maximize contributions to the
plan each year, even if lower paid employees contribute very little
- Nondiscrimination and top-heavy testing is automatically satisfied
for Safe Harbor employer contributions and employee deferrals.
- Safe Harbor 401(k) offers all the same benefits as the traditional
401(k) plan.
Possible Drawbacks:
- Employer contributions are required as follows:
- A dollar-for-dollar match on salary deferrals up
to 3% of compensation and
- 50 cents on the dollar for salary deferrals between
3% and 5% of employee compensation
- Alternatively, a nonelective contribution of 3% of compensation
for all non-highly compensated employees, regardless of whether
or not they participate in the plan, is required
- Enhanced matching contributions are permitted
- All Safe Harbor employer contributions are immediately 100% vested
- Requires filing IRS Form 5500
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