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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One of the main reasons employers choose Safe Harbor 401(k) plans for small businesses is to avoid the potentially costly and troublesome nondiscrimination testing rules. However, the Safe Harbor provision comes with rules of its own regarding deadlines for setup, altering the match, and giving employee notice.
Safe Harbors also have special rules regarding vesting, eligibility, duration, and allocation. These rules are subject to change from the IRS any given year, so it’s important to work with a plan administrator who keeps you in the loop about compliance.
The most important requirement of a Safe Harbor 401(k) is that:
Mandatory, vested contributions to employee plans is the most notable Safe Harbor requirement, but there are additional rules governing when and how you offer your plan.
While your basic/enhanced match or nonelective contribution must be nonforfeitable and 100% vested immediately to the employee, you can vest the “additional” contributions, if you are making them. For instance, Qualified Automatic Contribution Arrangement (QACA) or matching contributions to satisfy ACP tests may be set to a vesting schedule (up to a two-year cliff).
All employees that are eligible to contribute to your 401(k) plan are also eligible for the Safe Harbor match or nonelective contribution. Plan sponsors MUST offer the Safe Harbor 401(k) to all employees who:
A plan can allow more lenient eligibility requirements if the employer wishes to do so, but once an employee is eligible, they will receive the contribution due to them for the year. Employers cannot impose additional “last day of service” restrictions or hours requirements.
Distributions of elective deferrals, qualified matching, and qualified nonmatching contributions from Safe Harbor 401(k) plans cannot be withdrawn prior to termination of employment or age 59.5. However, a new exception was granted as of January 1, 2020, allowing hardship withdrawals from Safe Harbor plans on account of immediate and heavy financial need.
Safe Harbor 401(k)s are to be adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. Minor amendments are allowed mid-year, as long as sufficient notice is given. For instance, you may change the investment fund provider, add an age 59.5 withdrawal feature, or increase the matching contribution percentage.
Explicitly prohibited mid-year amendments include:
In 2020, exceptions can be made for businesses operating at a loss. The matching contribution formula can be suspended or modified as long as the change is announced at least three months before January 1, 2021.
The Safe Harbor notice can be delivered electronically, by hand, or by mail, but must contain the following:
Employers are responsible for timing and tracking the delivery of this notice, which can come up in auditing by the IRS or DOL. Notices must be delivered 90 days before the beginning of the first Safe Harbor plan year (October 1) or within 30 days of an existing plan amendment (December 2).
Companies like Ubiquity automatically send notice on behalf of small business owners, so there is one less task to think about. Contact us to discuss the Safe Harbor 401(k) today!