Avoid plan design pitfalls: Finding the Goldilocks Match

Some employer contribution formulas will naturally increase compliance risk, while others miss out on Safe Harbor protections. It’s important to find the design that is just right for your plan.

  • Matching employee deferrals at a low rate—any amount below 25%—can be a cost-effective option, but it can create its own issues in that:
    • If a company match fails to encourage broad employee participation, those employees who are able to defer the most, and thus receive the most matching, are often HCEs and owners. Such disproportionate matching may cause the plan to be outside of ACP limits. 
    • In combination, matching only a portion of employee contributions up to a high percentage of compensation creates a significant risk of ACP testing failure and compliance issues generally. Before selecting such an employer contribution formula, talk to your employees about their intended 401(k) contributions and contact us to discuss options to accomplish your goals. 

Some employer contribution formulas have employer costs that are comparable to Safe Harbor plans, but do not offer the benefits of Safe Harbor protections. 


    1. A 100% match to 7% of compensation is not eligible for Safe Harbor, but a 100% match up to 6% of compensation is. 
    2. Offering 100% matching to 2% and 50% matching to 6% is not eligible for Safe Harbor, but offering 100% matching to 3% and 50% to 5% is.
  • Offering a 50% match to 8% is a great match, but is not a Safe Harbor match.


Generally, if you are considering employer contributions totaling 3% of compensation or more, there may be a way to meet your goals with a formula that meets Safe Harbor requirements and therefore avoids the need for certain nondiscrimination testing. Guideline can help. Contact an Account Manager if you have questions about your options or want to make changes to your plan. 

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