Ubiquity Retirement + Savings has been an affordable provider of retirement solutions, including Safe Harbor 401(k) plans, designed for small businesses, start-ups, and solopreneurs since 1999.
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There are three formulas used to determine safe harbor contributions: two are matching, using basic or enhanced matching formula. The third is to make nonelective contributions to all eligible employee plans, regardless of employee participation.
The Safe Harbor provision allows employers to bypass the administrative headache, uncertainty, and expense of ADP, ACP, and Top Heavy nondiscrimination testing. The one caveat is that the employer must agree to contribute to the plans of all eligible employees.
Employers can choose from the following Safe Harbor 401(k) formulas:
Highly Compensated Employees can be excluded from these contributions, but plan participants must be 100% vested – meaning that your matched contribution belongs to all employees right away.
The maximum limit for a Safe Harbor plan is the same as any 401(k). For 2022, individuals under 50 can contribute up to $20,500 to their plans, and individuals over 50 can contribute up to $27,000. The total combined contribution allowance is $61,000 for younger workers and $67,500 for older workers.
Safe Harbor contributions are ideal for:
It may seem counterintuitive, but the 3% non-elective contributions can be cheaper than the 4% match at a certain point. The overall participation and savings rate will influence the total cost of the plan.
To calculate how much a safe harbor matching contribution will cost, run this formula:
# employees x % employees participating x $ average salary x % safe harbor contribution = $$
Let’s consider a few different scenarios for an employer with 50 employees whose average salary is $40,000.
Choosing which safe harbor contributions to make is a personal decision based on the unique factors of your business. Contact Ubiquity, a low-cost, flat-fee 401(k) administrator, to explore your options.