Give your team the highest-rated 401(k) plan.

A safe harbor plan is a qualified plan that uses a pre-determined employer contribution that is provided to all participants of the plan in exchange for an automatic pass on some annual nondiscrimination tests.

There are three types of safe harbor contributions:

• Basic match Company matches 100% on the first 3% of deferred compensation, plus a 50% match on the next 2% of deferred compensation. For example, if an employee earns $60,000 and defers 4% of her compensation ($2,400), the employer will match $1,800 ($60,000 x 3%) x 100%. Then the employer will match 50% of the remaining 1%, which is $300 ($60,000 x 1% x 50%). The total match from the employer then is $2,100 ($1800 + $300).

• Enhanced match: Company match that’s at least as generous as the basic match at each tier of the match formula. A common formula is a 100% match on the first 4% of deferred compensation. The maximum enhanced match is 100% match on the first 6% of compensation. For example, if an employee makes $60,000 and defers 4% ($2,400) of her compensation, the employer will match the same amount ($2,400). 

• Nonelective: Company contributes 3% or more of each employee’s compensation, regardless of whether the employee also makes elective deferrals. . For example, if an employee makes $60,000, they will receive a nonelective contribution totaling $1,800 whether or not they choose to defer into the plan.

All safe harbor plan designs may include an automatic contribution arrangement (ACA), which treats an employee who fails to make an election as having elected to defer the default percentage set by the plan. The employee can opt out of the default at any time. A specific combination of safe harbor required contributions and ACA provisions make a plan a QACA plan. 

Unlike other safe harbor designs, QACA plans are permitted to use a two-year cliff vesting schedule for employer safe harbor contributions. Some employers are willing to jump through additional design hurdles to take advantage of this two-year vesting schedule.

Yes. A plan can still make additional contributions, such as a discretionary match subject to a vesting schedule, or a profit-sharing contribution also subject to a vesting schedule. However, these additional contributions may subject the plan to nondiscrimination testing which the employer is trying to avoid by adopting the safe harbor provisions. There are specific methods of contributing additional funds to a plan that can potentially avoid making refunds or requiring certain contributions - ask a compliance specialist for more information should an employer want to contribute more than a safe harbor contribution in a plan year.

The basic match, enhanced match, or nonelective contribution must be 100% vested. The QACA contributions (see question 3 above) are allowed to use a two-year cliff vesting schedule.

Yes, but safe harbor contributions are subject to the same restrictions as employee deferrals. Consult the specific plan document to see if the safe harbor contribution is available for an in-service distribution such as age 59 ½ or hardship, as these aren’t required to be offered by plans.

The safe harbor contributions allow the plan to automatically pass ADP testing (and ACP testing if a safe harbor match is made). If the plan's annual contributions consist solely of elective deferrals and safe harbor contributions, the plan is also deemed to meet top-heavy requirements for that year without additional contributions being made by the employer (if applicable).

The safe harbor contributions made into the plan are included in other annual tests, such as annual additions and top-heavy testing.

The setup deadline depends on whether you are launching a new 401(k) plan or adding safe harbor features to an existing plan.

• For a new 401(k) plan:
• Safe harbor match or nonelective: To take effect for the current calendar year, the plan must be operational by October 1. The IRS requires a new Safe Harbor plan to have at least a 3-month deferral period for participants during its first plan year.
• For an existing 401(k) plan adding a safe harbor match:
• The plan amendment must be adopted before the start of the plan year (January 1 for calendar-year plans). You must also distribute the required annual notice to employees 30 to 90 days before the new plan year begins (by December 1 at the latest).
• For an existing 401(k) plan adding safe harbor nonelective contributions:
• 3% nonelective contribution: Under SECURE Act rules, you can amend an existing plan mid-year to add a 3% nonelective contribution up to 30 days before the end of the plan year (by December 1 for calendar-year plans) without a notice requirement.
• 4% nonelective contribution: If you miss the 30-day window, you can retroactively add a Safe Harbor nonelective contribution until the last day of the following plan year (e.g., December 31 of the next year), provided the employer contribution is increased to 4% for that plan year.

Under the SECURE Act, an annual notice is only required for safe harbor plans with a match. If your plan uses a safe harbor match, you must distribute the annual notice to eligible employees 30 to 90 days before the start of each plan year. This ensures employees have adequate time to make informed deferral decisions, as match elections cannot be applied retroactively.

For nonelective safe harbor plans (where the employer contributes 3% or more to all eligible employees regardless of employee deferrals), the annual notice requirement has been eliminated. However, an annual notice may still be required if your plan incorporates an Automatic Contribution Arrangement (ACA or QACA).