SAFE HARBOR 401(k) plan
Safe Harbor plans allow owners and highly compensated employees to maximize deferrals.
This type of plan is typically ideal for small business owners because it eliminates the need for non-discrimination and Top Heavy Testing. Those are required Traditional 401(k) tests, which can be cumbersome and reduce available tax-deductions.
Safe Harbor plans require an employer contribution and all of those contributions are 100% immediately vested. The employer has the option of either selecting an employer matching or non-elective contribution.
Below are examples to help you decide which may be best suited for your business.
A well-designed 401(k) can help to:
Reduce Your
Corporate Taxes
Help Save For Your Own Retirement
Attract, Reward and Retain Top Talent
OPTION 1
What is A SAFE HARBOR MATCH?
REAL WORLD EXAMPLE
Let's meet Caden and Carlie, they have 10 employees. However, only 6 employees are participating in the retirement plan. Caden and Carlie will match $1.00 for $1.00 of the employee’s contributions up to 3%. Then they will match $0.50 for $1.00 up to 5%. Here are three matching examples:
EMPLOYEE 1
Deferral Rate 1%
Safe Harbor Match 1%
(Dollar for dollar match up to 3%, so if the employee is deferring 1%, they will receive a 1% match.)
EMPLOYEE 2
Deferral Rate 5%
Safe Harbor Match 4%
(This employee is deferring 5%, therefore, they receive the 3% dollar for dollar match, then the $0.50 per $1.00 match up to 5% for a total match of 4%.)
EMPLOYEE 3
Deferral Rate 10%
Safe Harbor Match 4%
(For this super saver, they will receive a Safe Harbor match of 4%. Dollar for dollar up to 3%, then the $0.50 per $1.00 match up to 5% for a total match of 4%.)
WHAT IT MEANS
The basic Safe Harbor match formula is 100% of deferrals up to 3% of compensation and 50% of deferrals on the next 2% of compensation deferred. The maximum match is 4% of pay for anyone who defers 5% or more of their compensation. Employers, may also elect to offer an Enhanced Safe Harbor Match, up to 100% of deferrals and not to exceed 6% of compensation deferred.
OPTION 2
What is A SAFE HARBOR 3% NON-ELECTIVE?
REAL WORLD EXAMPLE
Caden and Carlie are 50/50 owners and have 10 employees. To offer a Safe Harbor Non-Elective retirement plan, the company needs to contribute 3% of salary to the retirement accounts of all eligible employees.
EMPLOYEE 1
Deferral Rate 1%
Non-Elective 3%
EMPLOYEE 2
Deferral Rate 5%
Non-Elective 3%
EMPLOYEE 3
Deferral Rate 10%
Non-Elective 3%
WHAT IT MEANS
The employer must make a 3% contribution to all eligible employees, regardless of whether or not the employees are participating in the plan. This type of contribution can also be done with a “flexible” notice letting the employer decide each year whether or not they will make the contribution.
On-going Experience
Every year, Premier Plan Consultants will provide on-going support and complete the following requirements:
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Partner with you to offer a powerful company benefit
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Be a reliable resource for your questions
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Review and monitor your retirement plan to ensure it is meeting employer needs as best as possible
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Complete compliance testing requirements
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Discuss your current plan design
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Recommend updates and changes as company goals and/or demographics change
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Review trust assets to ensure all assets are accounted for and in the correct accounts
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File the required Form 5500
Throughout each step, Premier Plan Consultants will work closely with your business, recordkeeper and advisor to ensure a quality retirement plan offering.
Today, businesses of any size can easily establish a 401(k) plan that is reasonably priced, simple to implement and requires little time to administer. Offering a 401(k) plan not only helps your employees, but also helps your firm be more competitive in the marketplace.
EMPLOYER CONTRIBUTIONS
Safe Harbor 401(k) Plans do require specified employer contributions and all contributions are immediately vested. Safe Harbor provisions give the employer the option to commit to either an employer matching contribution or employer non-elective (profit share). Contact us to discuss your plan and options today.