Adding Safe Harbor after January 1st (mid-year)

If you missed the November 30th deadline to elect safe harbor for the following year, it’s not too late! You’re actually able to add safe harbor status during the plan year. 

In order to gain safe harbor status and be exempt from compliance testing, you must add at least a 3% non-elective contribution. As a reminder, a non-elective contribution means you make employer contributions to every employee regardless of their  participation, i.e.,if an employee isn’t contributing, you, as the employer, will still give them an employer contribution. 

Once adopted, the non-elective contribution provision will go into effect immediately on a per pay period basis. Additionally, the following year Guideline will process a true-up for employees to ensure that everyone received the full employer contribution for the entire plan year based on their gross compensation. 

For example, Music Mogul, LLC has 2 employees, Dave Matthrews and Zac Brown, who are paid monthly. Music Mogul, LLC adds a 3% non-elective safe harbor contribution on September 1st. .  

Pay Date

Dave Matthrews ($3,000/month)

Zac Brown ($5,000/month)

 

Employee Contribution (0%)

Employer Contribution (3%)

Employee Contribution (12%)

Employer Contribution (3%)

9/30

$0

$90

$600

$150

10/31

$0

$90

$600

$150

11/30

$0

$90

$600

$150

12/31

$0

$90

$600

$150

True Up

$0

$720

$0

$1,200

Total

$0

$1,080

$2,400

$1,800

 

Dave Matthrews makes $3,000 per pay period, and his gross compensation for the year is $36,000. He is owed a total employer contribution for the year of $1,080. Music Mogul, LLC has already given Dave $360 dollars towards his employer contribution, through payrolls made after the plan added a 3% non-elective safe harbor contribution. Therefore, Dave is owed an additional $720 via a true-up. 

Zac Brown makes $5,000 per pay period, and his gross compensation for the year is $60,000. He is owed a total employer contribution for the year of $1,800. Music Mogul, LLC has already given Zac $600 dollars towards his employer contribution. Therefore, Zac is owed an additional $1,200 via a true-up. 

Music Mogul, LLC will have a true-up of $1,920 for the two employees, which Guideline calculates and pulls the following year, after the employees’ compensation for that year is confirmed. True-ups are typically processed by Guideline in Q3. 

Please note: all employer contributions must be 100% immediately vested. 

If your plan currently offers a discretionary match, by adding a safe harbor non-elective contribution provision, your plan will still be subject to the top heavy test

If you add a safe harbor provision after December 1st, the non-elective contributions must be at least 4%. 

 

To add safe harbor provisions mid-year, please email clients@guideline.com and provide your Guideline account number, along with the percentage you wish to provide for your safe harbor non-elective contribution. 

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