INDUSTRY LINKS

Internal Revenue Service
www.irs.gov
Department of Labor www.dol.gov/ebsa
Social Security Administration www.ssa.gov
National Institute of
Pension Administrators
www.nipa.org
American Society of Pension Professional & Actuaries www.asppa.org
Western Pension & Benefits Conference
www.westernpension.org

IRS Employee Plan News Link
IRS Retirement News for Employers
  • Plan Design & Quotes

SAFE HARBOR CONTRIBUTIONS

An employer may make either a Safe Harbor Non-Elective Contribution or a Safe Harbor Matching Contribution to satisfy the 401(k) non-discrimination tests required by IRS regulations. A safe harbor contribution must apply to at least all eligible non-highly compensated employees (NHCE). The plan may exclude highly compensated employees (HCE) from the allocation.

Safe Harbor Non-Elective Contribution

A non-elective contribution will satisfy the safe harbor contribution requirement if it equals at least 3% of the employee’s compensation. The 3% non-elective contribution is 100% vested and allocated to all eligible participants (whether or not they defer).

As long as the 3% requirement is satisfied, the plan may provide for additional contributions at the employer’s discretion.

A Safe Harbor Notice must be provided to all employees at least 30 days before the last day of the current plan year to be effective for the next plan year. The notice can state that the 3% non-elective contribution “may be” made during the next plan year. However, if a “may be” notice is prepared; the employer must issue a supplemental notice 30 days before the plan year-end stating whether the contribution will be made. If the employer chooses not to make the contribution, applicable 401(k) non-discrimination tests will apply.

Safe Harbor Matching Contribution

A matching contribution will satisfy the safe harbor contribution requirement if it is no less than the “basic” formula detailed below:

Basic Safe Harbor Match Formula
100% match on the first 3% of compensation deferred plus
50% match on the next 2% of compensation deferred

The maximum match under this “basic” formula is 4% of compensation. A match of that amount would apply to any participant who defers at least 5% of compensation.

Enhanced Safe Harbor Match Formulas

• 100% of each Participant’s Elective Deferrals up to 4% of compensation
• 100% of each Participant’s Elective Deferrals up to 5% of compensation
• 100% of each Participant’s Elective Deferrals up to 6% of compensation

All safe harbor matching contributions are 100% vested. A Safe Harbor Notice must be provided to all employees at least 30 days before the last day of the current plan year to be effective for the next plan year. The contribution may be calculated annually or each payroll period. The employer may amend the plan to discontinue the safe harbor matching contribution during the plan year. However, a supplemental notice must be provided to all employees no less than 30 days before the contribution is discontinued and applicable 401(k) non-discrimination tests will apply for that portion of the plan year.

Please be advised that any advice included in this communication, including any attachment, is not intended, and cannot be used, for the purpose of (1) avoiding any federal tax penalty, or (2) promoting, marketing, or recommending any transaction or matter to another person.

Download this as a pdf
Safe Harbor Contributions.pdf