What Are the Safe Harbor Plan Rules for 2022?

Author: Siân Killingsworth / 9 Mar 2022 / 401(k) Plan Information, Retirement News, Safe Harbor

See what rule changes are in place for small business Safe Harbor 401(k) plans for 2022.

It’s helpful to know which IRS rules and limits apply from year to year, whether you currently offer a Safe Harbor 401(k) or you are exploring options to open a small business 401(k) plan in 2022. If you have an existing 401(k) that is not a Safe Harbor, making the switch is as easy as adding a plan amendment. As one of the leading providers of small business retirement plans, Ubiquity can help you do just that.

Since 1999, small businesses have counted on Ubiquity Retirement + Savings to administer affordable retirement solutions, including Safe Harbor 401(k)s. Whether you’re a solopreneur, startup owner, or employ fewer than 100 people, we keep up on the latest plan rules to keep you in compliance.

General Safe Harbor 401(k) Rules

If you’ve failed ADP and ACP nondiscrimination tests or if IRS compliance is of concern to you, then it’s worth looking into the Safe Harbor 401(k) plan. These plans allow you to bypass testing when you accept a few ground rules that ensure fairness for Non-Highly Compensated Employees (NHCEs) and Highly Compensated Employees (HCEs).

• Employers must provide a matching or nonelective contribution to all 401(k)-eligible employees
• The contribution must be immediately vested
• On average, HCEs cannot contribute more than two percentage points greater than NHCEs

2022 Contribution Limits

The upper limit for 401(k) contribution limits, including for Safe Harbor plans, went up in 2022:

• Both traditional and Safe Harbor 401(k) plan limits increase by $1,000 to $20,500 in 2022
• Those age 50 or older can add another $6,500 in catch-up contributions
• The employer/employee maximum is $61,000 – up $3,000 from 2021
• The maximum employee limit for calculating contributions increased by $15,000 to $305,000 in 2022
• The threshold for key employee top-heavy testing increased $15,000 to $200,000
• The threshold for highly compensated employee nondiscrimination testing increased $15,000 to $200,000

SECURE Act Changes Applicable to 2022

The SECURE Act (first in effect for the 2020 plan year) created the following changes that remain in place for 2022:

• A 15% maximum automatic contribution rate for QACA Safe Harbor 401(k)s

Qualified Automatic Contribution Arrangements Safe Harbor plans previously auto-enrolled participants at a rate of 3-10%, increasing contributions in 1% annual increments to a 10% maximum. Companies may opt to increase to a 15% maximum if they so choose. Changes can be made to the plan as late as the end of 2022.

• No need for nonelective plan notice requirements

Prior to the SECURE Act, employers were required to notify all Safe Harbor plan participants of their eligibility, prior to the beginning of the year. Employers must still notify employees of a matching contribution plan in order to satisfy ACP test requirements. However, notification is not mandatory to satisfy ADP requirements when nonelective contributions are made on the employees’ behalf. Other notices – like eligible automatic contribution arrangements, auto-enrollment opt-outs, and mid-year contribution elimination – are still required.

• Retroactive Safe Harbor with nonelective contributions allowed

Employers may retroactively apply a 3% nonelective contribution to the year up until December 1, 2022.

Employers may retroactively apply a 4% nonelective contribution to the year up until December 31, 2022.

Contact Ubiquity for Safe Harbor 401(k) Administration in 2022

It’s not too late to start a Safe Harbor 401(k) plan for 2022. Contact us to customize a retirement savings solution for your small business.