Safe Harbor plans help you avoid year-end plan corrections

A Safe Harbor 401(k) plan can provide valuable relief for companies looking to mitigate compliance risk while enabling employees to save more for retirement. By offering an eligible employer contribution, companies can avoid the hassle of yearly nondiscrimination testing and employees can get a meaningful jumpstart in their retirement savings. A win-win for everybody!

Check out the helpful video guide here to learn more.

Automatically Waive Burdensome Non-discrimination Testing

A Safe Harbor plan generally exempts from required annual nondiscrimination testing. Testing includes the Actual Deferral Percentage and Actual Contribution Percentage (ADP/ACP) tests and Top Heavy tests, which are designed to ensure plan benefits are fair and don't discriminate in favor of business owners, officers and highly paid employees. The consequences of failing one of these tests can include taxable refunds to highly paid participants, owners and officers, as well as a mandatory company contribution to lowest paid employees. You can learn more about the implications of nondiscrimination testing here.

Encourage Participation & Reward Employees For Saving

In addition to reducing the burden of year-end compliance testing, safe harbor contributions serve as an incentive to encourage more employees to participate in the plan. Your contributions also provide additional retirement savings to your valued employees.   

In order to take advantage of this exemption, an employer must provide one of two types of safe harbor contributions, as described below. All safe harbor contributions are 100% vested, meaning the employee is immediately given absolute, non-forfeitable rights to the vested assets, and this right cannot be taken away.

Safe Harbor Nonelective Contribution

A nonelective contribution is seemingly the simplest of the safe harbor options. The employer makes a contribution equal to 3% or more of an employee's compensation, regardless of whether or not the employee contributes to his or her 401(k) account.   

Safe Harbor Matching Contribution

With a matching contribution, the employer may make a contribution to an employee’s account, based on how much the employee contributes to the account themselves. Employers can choose to provide a maximum match between 4% to 6% of employee compensation tiered structures are also possible. Consult your Guideline representative or contact us at Guideline Support to learn more about which matching formulas can qualify for safe harbor contributions.  

Who’s Eligible for Safe Harbor Contributions?

Safe harbor matching contributions must be made for all employees eligible to participate in your 401(k) plan. You are permitted, to a certain extent, to limit which employees will be eligible to participate in the plan itself by setting certain eligibility requirements, such as age or length of service.

Create Your Safe Harbor Plan Today!

If you do not have an existing 401(k) plan, you may implement a new Safe Harbor plan up to October 1st of the plan year in which you set up a new plan. We recommend initiating plan setup no later than August 15th to make sure there’s plenty of time to get all plan documents and notices in order, including a required 30 day notice to participants prior to the October 1st deadline. If you’re ready to get started with a hassle-free Safe Harbor plan, drop us a line at and we’ll get you started!

If you have an existing Guideline 401(k) plan and are interested in adopting a Safe Harbor plan, your plan may be amended for a Safe Harbor effective date of January 1 of the following year per IRS rules. Keep in mind that participants must be notified of upcoming Safe Harbor changes 30 days before January 1st, so contact us before November 1st regarding adding Safe Harbor contributions for the coming year to allow adequate time for preparation of plan documents and notices.

Mid-Year Changes to Your Safe Harbor 401(k)

If you are interested in making changes to your Safe Harbor 401(k) plan with an effective date other than January 1st, the IRS imposes strict limits on permitted mid-year changes. 

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