This requirement is deemed to be satisfied if the notice is provided to each eligible employee at least 30 days and not more than 90 days before the beginning of each plan year. The timing requirement requires that the employer must provide notice within a reasonable period before each plan year. In order to satisfy the content requirement, the notice must describe the safe harbor method in use, how eligible employees make elections, any other plans involved. The notice requirements are satisfied if each eligible employee for the plan year is given written notice of the employee's rights and obligations under the plan and the notice satisfies the content and timing requirements. Safe harbor 401(k) plans must satisfy certain notice requirements. The business owners receive 48% of the matching contributions. The matching contributions for the employees are affordable and each business owner contributes the maximum amount allowed. Under this scenario, the business owners can again contribute up to the annual limit of $18,000 plus $6,000 as a catch-up contribution for 2015. In Option Two we have demonstrated all of the employees contributing 5% of compensation and receiving the Safe Harbor Match. The Safe Harbor Matching contribution is a great option for them to use. Some business owners only want to make contributions for those employees who are contributing to their own retirement. The Safe Harbor Non-Elective 3% contribution can also be easily combined with additional Profit Sharing contributions in a cross-tested plan, see Cross Tested 401(k) Plan article here. Under this scenario the business owners receive 47% of the employer contributions. In Option One we have demonstrated two business owners at different wage levels contributing the maximum 401(k) contribution amount of $18,000 plus $6,000 as a catch-up contribution by utilizing the Safe Harbor Non-Elective 3% contribution. This example includes options for a Safe Harbor Non-Elective 3% plan and a Safe Harbor Match plan. The Safe Harbor Match contribution may also be less than the contribution required under the top-heavy rules since the Safe Harbor Match is only being contributed for employees making their own 401(k) contributions.Īlso, if the business owner utilizes Safe Harbor and has a spouse on the payroll, the spouse can contribute 100% of the spouse’s wages up to the annual limits to the plan without any testing issues. For the first year a participant becomes eligible, the top-heavy contribution must be calculated on full year compensation, but the safe harbor contribution may be calculated on compensation for only the time the participant was eligible, thus reducing the cost to the company. If Safe Harbor is adopted and only the Safe Harbor contributions are being made, then only the Safe Harbor contributions are required and no top-heavy contributions are required. Many plans may also be top-heavy and be required to contribute 3% of each participant’s entire year compensation if the owner and key employees are making 401(k) contributions during the year. One way to guarantee that the business owner and other highly compensated employees will be able to contribute the maximum 401(k) amount without testing issues is to adopt one of the Safe Harbor contribution options. Many owners and other highly compensated employees can not contribute these maximum 401(k) amounts each year due to the required nondiscrimination testing. For 2017 the limit is $18,000 and if the employee attains the age of 50 during the plan year, he can contribute an additional catch-up contribution of $6,000. The Internal Revenue Code sets limits on the amount that a participant can defer on a pre-tax or post-tax basis each year. Safe Harbor 401(k) plans that do not deposit any additional contributions in a plan year are also exempted from the top-heavy rules. Both contributions are 100% vested immediately. There are two types of contributions to chose from: 1) a matching contribution using the formula of a 100% match of the first 3% plus 50% match of the next 2% of employee compensation deferred, or 2) a nonelective contribution that is 3% of compensation to all eligible employees, regardless of whether they make 401(k) contributions themselves. A Safe Harbor 401(k) Plan requires that the plan sponsor make an employer contribution to the plan. Safe Harbor is a concept which has been around since 1999 that allows plans to automatically pass nondiscrimination testing.
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