Safe Harbor Plans

A safe harbor 401(k) plan is one under which an employer is able to avoid non-discrimination testing on employee deferrals by making a fixed, 100% vested contribution to eligible employees.

The contribution may be made as a match to each participant’s deferrals of 100% up to the first 3% of compensation and 50% of the next 2%, or as an employer non-elective contribution of 3% of compensation to all eligible participants. The employer has the option of limiting these contributions to non-highly compensated employees.

A written notice is required to advise participants of the use of the safe harbor election and the option selected. The notice should be provided within 30-90 days before the beginning of the plan year.

Employers that have historically had difficulty allowing key employees to defer as much as they would like and pass non-discrimination testing would benefit from this type of plan design.