Safe Harbor 401(K) Plans

Most employers offer a retirement plan to their employees. The most popular type of plan today is a 401(k) plan. This type of plan allows the employee to contribute funds to their retirement and also gives the employer the opportunity to provide a match or profit sharing.

One common complaint we hear is that the owners or highly compensation participants in the plan cannot maximize their annual contributions to the plan. One way to alleviate this is to adopt a Safe Harbor 401(k) plan, which allows the participants to make contributions up to the federal limits and is exempt from the annual testing required for traditional 401(k) plans.

A Safe Harbor 401(k) plan does require mandatory employer contributions on behalf of the employees of at least 3% of compensation for eligible employees or between 4-5% of the employees’ compensation for those who have salary deferrals. It also requires immediate vesting in the employer contributions. In most cases this will increase the cost of the retirement benefits provided by the employer. Today’s employment environment makes it often difficult to find and hire new employees. A retirement plan match can be a nice benefit that could help you retain or attract employees.