Safe Harbor 401(k) Retirement Plans

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 noncompliance testing in the past. 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 designed to fit perfectly to your needs. Only Ubiquity offers transparent, low cost plans¹, free expert advice, and 24 years of small business experience.

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. Then, 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.

• 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 notice must contain the following: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, so they have one less thing to think about.

• 100% vesting immediately. All Safe Harbor employer contributions are 100% vested to the employee — this means they are non-forfeitable. If you choose to make additional employer contributions (whether match or profit-sharing), those contributions may be subject to a vesting schedule. If an employer has a Qualified Automatic Enrollment Contributions Arrangement (QACA), contributions must be fully vested by two years of service.
• 12-month plan rule. Generally, Safe Harbor plan rules should be adopted before the first day of the plan year and remain in effect for an entire 12-month plan year, but there are exceptions for 3% and 4% Safe Harbor non-electives. For 3%, they can be adopted after the first of the plan year and would be effective for that entire year. For 4%, they can be adopted after the plan year, and would also be effective for that entire year. More information about this can be found in our Safe Harbor deadlines below.
• 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 plans, they are also eligible for employee matching.
• 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.
  

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

So, if you are starting a new calendar year plan, the plan must begin no later than October 1, 2025 to include Safe Harbor provisions for that first plan year. Starting a new plan can take time to administer, so we recommend contacting your plan provider no later than September 1, 2025.

• For Safe Harbor Match, 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 1, 2025, you’ll need to request the addition of a Safe Harbor provision to your 401(k) plan before December 1, 2025.
• A 3% Safe Harbor non-elective can be adopted any time up until December 2, 2025, and will be effective for the entire 2025 plan year.
• A 4% Safe Harbor non-elective can be adopted any time up until December 31, 2026, and will be effective for the entire 2025 plan year.

Safe Harbor provisions can be updated mid-year, but there are limitations on what can be changed. For example, if you have Safe Harbor Match, you can move to a 6% from a 4% mid-year if the effective date is as of 1/1 in that year. This means you would need to contribute 6% for a full year to qualify for the update.