Safe Harbor 401(k) Plan Rules for 2020

Whether you have a Safe Harbor 401(k) already or are considering a new plan, it helps to know what’s new for 2020. While the primary Safe Harbor requirement is that you must make contributions to your employees’ 401(k), there are also other 2020-specific rules regarding how and when you can offer your plan.

Ubiquity sets up brand new 401(k)s with the Safe Harbor provision. If it appears a business may fail this year’s nondiscrimination test, it is possible to terminate an existing plan completely and set up Safe Harbor contributions.

Important 2020 Deadlines for Safe Harbors with Employer Matching Contributions

Here are the 2020 dates you need to know:

• September 25, 2020: Deadline for setting up your Ubiquity Safe Harbor 401(k) Plan for the existing year.
• October 1, 2020: Final IRS Deadline for starting a new Safe Harbor 401(k) Safe Harbor 401(k), which will be exempt from 2019 testing.
• November 30, 2020: Deadline for adding a Safe Harbor matching provision to your 401(k) for the following year.
• December 2, 2020: A 30-day notice must be sent to notify all employees of the Safe Harbor provision.
• January 1, 2021: The new Safe Harbor matching provision takes effect, exempting the plan from nondiscrimination tests.

More Flexible Notice Requirements for Nonelective Contributions

This year provides a new notice exemption for employers making nonelective contributions.

• The old deadlines still stand for Safe Harbors with employer matching.
• Employers can make plan amendments for nonelective contributions within 30 days of the plan year end.
• If a 4% contribution is made, employers have until the very last day of the plan year to add Safe Harbor.

Given these changes, the Safe Harbor might be worth a closer look, as it can now be adopted retroactively in the event of ADP/ACP testing failures. Adopting the Safe Harbor can alleviate the failure, but will cost a 3-4% employer contribution.

2020 Safe Harbor Contribution Limits Increase by at least $1,000

• If you’re under 50, the total employer/employee 401(k) contribution limit increases from $56K to $57K.
• If you’re over 50, your combined contribution increases from $62,000 to $63,500 this year.

2020 Increases the Maximum Automatic Deferral Rate by 5%

A Qualified Automatic Contribution Arrangement (QACA) is a form of Safe Harbor 401(k) plan that includes automatic enrollment. QACAs have strict compliance rules.

• Prior to 2020, the automatic deferral rate was capped at 10% of employee pay.
• For 2020, the limit is capped at 15% of compensation starting in an employee’s second year in the plan.
• Employees in their first year are still subject to the 10% cap.
• The minimum thresholds of 3-6% remain unchanged.

New Safe Harbor Hardship Rules for 2020

A plan does not have to permit hardship withdrawals, but 2020 changes you may apply to your plan allow:

• A withdrawal to repair damage to a principal residence, regardless of whether the residence is in a federal disaster area or not.
• A withdrawal if it can be demonstrated that the employee has insufficient cash or liquid assets available.

Have Questions About Safe Harbor 401(k)s in 2020?

Many of these changes were enacted as a result of the SECURE Act of 2019. If you have any further questions, we invite you to contact us here at Ubiquity. We administer 401(k) plans of all types for a low, flat-fee.