![]() ![]() Safe Harbor Contributions are Fully Vested. Once an employee is eligible for the plan, the allocation of a Safe Harbor contribution cannot be restricted based on hours worked or a last day rule. No Service or Hours Requirement for eligible employees are allowed with Safe Harbor plans. An alternative is the 3% of compensation Non-Elective Safe Harbor which is given to all eligible participants including those not deferring. This only needs to be made for employees deferring to the plan. There is a matching contribution that which is 100% of the employee’s deferrals up to 3% of compensation and 50% of the employee’s deferrals on the next 2% of compensation. The employer will need to determine which Safe Harbor Contribution Formula is best for them. ![]() Your Sheakley Retirement and 401(k) representative will be able to help you determine if your plan is exempt.Ī Safe Harbor plan requires a contribution on the employer’s part. Plan design highlightsĪ Safe Harbor plan allows the highly compensated employees to defer the maximum contribution and avoid corrective distributions regardless of the participation from the non-highly compensate employees.Ī Safe Harbor plan may be exempt from Top-Heavy rules. Additionally, long vesting schedules are not allowed with Safe Harbor plans. The match amount will depend on your own contributions to the plan as a business owner. Employers must make contributions to each employee’s plan that is the same percentage of salary for every employee. Plans are Top-Heavy when the total value of the plan accounts of key employees is more than 60 percent of the total value of the plan assets.Ī Safe Harbor 401(k) allows for your plan to be structured in a way that automatically passes the non-discrimination test. Top-Heavy rules help ensure that lower paid employees receive a minimum benefit. In addition, if your plan is Top-Heavy, a Safe Harbor plan design may automatically satisfy the Top-Heavy requirements. These tests are two types of required annual nondiscrimination tests that 401(k) plans must pass to keep their qualified status under IRS rules and the Employee Retirement Income Security Act (ERISA). A Safe Harbor plan differs from a traditional 401(k) in that it is generally not subject to Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) testing. ![]()
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