Safe Harbor 401(k) Plans

You deserve a retirement plan that maximizes your contributions while championing your employees. A Safe Harbor 401(k) benefits you, your key team members, and all participating employees.

  • Maximize your retirement plan contributions
  • Incentivize your team to save for their future
  • Sail through required IRS compliance testing
  • Receive up to $16,500 in tax credits over three years when you open a 401(k).¹
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Is Safe Harbor right for my business?

Chart a Course Towards Retirement Savings

While a Safe Harbor 401(k) can seem like an obvious choice it may not be the best option for every plan.

Safe Harbor plans are a great fit for small businesses (particularly those with under 25 employees) and businesses that have failed non-discrimination testing in the past. But while you save in administrative hassle, you may pay a bit extra in plan costs and required contributions.

Weighing the pros and cons of a Safe Harbor plan for your business can be challenging without all the additional hassle of setting up a 401(k). Luckily, our experts at Ubiquity can walk you through the plan design options and the setup process to make sure your plan is tailored to fit your needs. Only Ubiquity offers flat-fee plans plus free expert advice combined with 23+ years of experience.

Safe Harbor 401(k) Plan Provision Deadlines

What is the deadline to start a new Safe Harbor plan?

The Safe Harbor provisions must be in place for at least 3 months if you are adopting a new 401(k) or 403b plan.

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What is the deadline to add a Safe Harbor provision to an existing 401(k) plan?

Safe Harbor provisions can only be added to an existing plan before the beginning of the plan year and require you to provide a 30-day notice to your employees. If your new plan year begins January 1st, you’ll need to request the addition a Safe Harbor provision to your 401(k) plan before November 30th.

Safe Harbor provisions cannot be changed or eliminated during the year except if the plan is terminated completely. In the event of plan termination, the Safe Harbor contribution up through the date of termination would still apply.

Additional Safe Harbor Rules:

  • 100% vesting, immediately. All Safe Harbor employer contributions are 100% vested to the employee– this means they are nonforfeitable. If you choose to make additional employer contributions (whether match or profit-sharing), those contributions may be subject to a vesting schedule.
  • 12-month plan rule. Safe harbor Match plan rules should be adopted before the first day of the plan year and remain in effect for an entire 12-month plan year.
  • Eligibility. All employees that are eligible to contribute to your 401(k) plan are also eligible for the Safe Harbor provisions for the plan. This means that once an employee is able to contribute to their own account, they are also eligible for employee contribution.
  • No allocation restrictions.  Once an employee is eligible for the Safe Harbor contribution, they will receive the contribution due to them for the year.  The employer cannot impose additional restrictions such as a “last day of service” or an hours requirement for Safe Harbor contributions

Safe Harbor Notice Requirements

Within 90 days before the beginning of the first Safe Harbor plan year (generally October 1), business owners must notify employees that a Safe Harbor feature has been adopted. Each year that the Safe Harbor feature is in effect, employees must receive a notice 30–90 days before the beginning of the plan year.  This document outlines the employee’s rights and obligations under the Safe Harbor Plan provision.

Your Safe Harbor notice must contain the following:

  • The Safe Harbor matching or non-elective formula used in the plan
  • Level of matching contributions, if any, other contributions under the plan, and the conditions under which they will be made
  • The type and amount of compensation that may be deferred
  • The method of making deferrals under the plan
  • The periods available for making elections
  • The withdrawal and vesting provisions applicable to contributions under the plan
  • How to obtain additional information about the plan:

Your Safe Harbor Plan Notice may be delivered electronically, by hand, or by regular mail. Employers are responsible for tracking the delivery list, method, and timing of delivery, which will be requested in case of an audit by IRS or DOL. Companies like Ubiquity automatically do this on behalf of the small business owner.

What are the Employer Contribution Options for Safe Harbor 401(k) Plans?

In exchange for getting an automatic pass on the ADP and ACP tests and the extra administrative duties that go with the testing process, business owners must make a minimum contribution to the plan each year, which must be immediately 100% vested (nonforfeitable). Business owners may choose from two common contribution options:

Matching contributions

A matching contribution means that the employer’s contribution matches a certain percentage of the employee’s contribution. In a Safe Harbor plan there are two main matching formulas used:

  1. Basic Matching: In a basic match, the company matches 100% of each employee’s 401(k) contributions, up to 3% of an their annual compensation, plus a 50% match of the next 2% of their contributions.
  2. Enhanced Matching: In an enhanced match, the company matches at least 100% of each employee’s 401(k) contributions, up to 4% of their compensation.

Additional matching formulas may be available, depending on the plan.

Nonelective contributions

Unlike matching contributions, nonelective contributions are given to all eligible employees even if they are not making salary contributions to the plan. If a business owner decides to set up a Safe Harbor plan with nonelective contributions, the company must contribute at least 3% of each employees compensation to all eligible participants–regardless of the employees’ contributions.

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¹Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for ordinary and necessary costs of starting a 401(k) plan. IRS’ qualifying factors are: you had 100 or fewer employees who received at least $5,000 in compensation from you in the preceding year, you had at least one participant who was a non-highly compensated employee (NHCE) and in the three tax years before the first year you’re eligible for the credit, your employees were substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either. Those plans with automatic enrollment can claim a tax credit of $500 per year for a 3 year taxable period.

²An evaluation has been conducted by Decimal, Inc. through its research of independent customer reviews on Google, Trustpilot, and the Better Business Bureau as reported by unaffiliated contributors on or before September 30, 2022, with a revaluation date on January 12, 2023, resulting in an updated evaluation, for four similar small-business 401(k) providers in the marketplace.

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© 2024 Ubiquity Retirement + Savings
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San Francisco, CA 94104

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Talk to Sales
Schedule a Free Consultation

Contact Support
Visit our Help Center
6am–5pm PT / 9am–8pm ET

© 2024 Ubiquity Retirement + Savings
44 Montgomery Street, Suite 300
San Francisco, CA 94104