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COLLECTED WISDOM™ on Safe Harbor 401k Retirement Plans

As a general rule, 401k plan must satisfy certain non-discrimination requirements. Many small businesses find this hard to do and, as a result, many don't set-up such plans. The Small Business Job Protection Act of 1996 provided 401k plans with alternative, simplified methods of meeting the non-discrimination requirements. 401k plans that adopt one of these alternative methods are referred to as "safe harbor 401k" plans.

Here is information to help you understand Safe Harbor 401k plans.

This archive contains not only the most current material on the topic, but also older items that are still relevant, provide background, perspective or are germane to the topic.

If you find a broken link or an items that you feel is outdate, irrelevant or no longer appropriate, please let us know.


Simple IRA, Simple 401k, Safe Harbor 401k and QACA Chart

Summary: This chart, prepared by McKay Hochman, compares the features of Simple IRA, Simple 401k, Safe Harbor 401k and Qualified Automatic Contribution Arrangement plans.

Source: Mhco.com, February 2015

Modifications to Safe-Harbor Matching Contribution Requirements Have Taken Effect

Summary: The modification was enacted to ensure that the requirements that apply to a mid-year reduction or suspension of safe harbor nonelective contributions are not stricter than those applicable to a mid-year reduction or suspension of safe harbor matching contributions. The Final Regulations took effect as of January 1, 2015.

Source: Benefitslawinsider.com, February 2015

Safe Harbor 401k Plans Becoming Mainstream

Summary: With a clear understanding of how a safe harbor 401k plan works, smaller employers can enjoy the many advantages of adopting a 401k plan, while avoiding many the arduous nondiscrimination requirements.

Source: Linkedin.com, January 2015

Many DC Plan Sponsors Must Annually "Notice" Their Participants

Summary: Sponsors of DC plans with certain features are required to provide annual notices to participants. Generally, these annual notices are in addition to any initial notices the plan sponsor may be required to provide on or before an employee's eligibility date for the plan feature. This publication provides a summary of the annual notice requirements for those notices, including timing, recipients, contents, and method of delivery.

Source: Prudential.com , September 2014

Limitations on Mid-Plan Year Amendments to Safe Harbor 401k Plans

Summary: There are currently very few amendments that can confidently be made to a safe harbor 401k without potentially running afoul of this restrictive IRS position. This article briefly discusses the limited, formally documented exceptions to the general "do not amend" rule otherwise espoused by the IRS.

Source: Legacyrsllc.com, September 2014

Safe Harbor 401k Establishment Deadlines 2014

Summary: Although the greatest burden imposed on a plan sponsor who elects a safe harbor 401k plan design feature is usually perceived to be the funding of the safe harbor contribution, there are many other administrative requirements that must be satisfied in order to qualify for the ADP / ACP exemption. One such requirement relates to the plan year of a safe harbor 401k plan.

Source: Legacyrsllc.com, July 2014

Plan Year Changes to Safe Harbor 401k Plans

Summary: An employer seeking to reduce or suspend its safe harbor contributions for 2014 should consider doing the following to take advantage of the additional flexibility provided by the final regulations: Determine whether it is operating at an economic loss; review its safe harbor notice for 2014 to determine whether such notice includes the information described above; and, arrange for non-discrimination testing to be performed for the plan year.

Source: Wolffsamson.com, April 2014

The Continuing Evolution of the Safe Harbor 401k Plan

Summary: The safe harbor 401k plan roared onto the scene in 1998 as a new design that allowed company owners and other highly compensated employees to maximize their salary deferrals even when other employees contributed at relatively low levels. Over the last 16 years, these plans have continued to evolve through a series of new laws and IRS pronouncements. There are certainly many advantages to this design and there are additional restrictions as well.

Source: Pensysinc.com , April 2014

Safe Harbor 401k Plan Plan Notices: Fixes From the IRS

Summary: The Internal Revenue Services has posted "Fixing Common Plan Mistakes - Failure to Provice a Safe Harbor 401k Notice". Plan sponsors of safe harbor 401k should read this list of common mistakes and the IRS's recommended fixes to help ensure their plans remain in compliance and thereby, maintain their tax qualified status.

Source: Badenrps.com, March 2014

SIMPLE IRAs vs. Safe Harbor 401k Plans: What Are the Differences?

Summary: Savings Incentive Match Plans for Employees (SIMPLEs) are frequently mentioned as a low cost alternative to 401k Safe Harbor Plans for providing employees the opportunity to save for retirement. This chart compares the differences between SIMPLE IRAs and Safe Harbor 401k Plans.

Source: Consultrms.com , March 2014

You Can't Just Wish Yourself Into Safe Harbor Plan Status

Summary: Achieving safe harbor status in your 401k plan requires three things. Each of these three steps is required, such that compliance with one or two out of the three does not make a plan a safe harbor plan, but many plan sponsors try to use the "best two out of three" argument in their own defense.

Source: Employeebenefitplanaudit.belfint.com, November 2013

IRS Final Rule Simplifies Requirements to Suspend or Reduce Safe Harbor Contributions Mid-Year

Summary: The Internal Revenue Service (IRS) issued final rules permitting the mid-year reduction or suspension of safe harbor nonelective contributions 401k's by employers that are operating at an economic loss or satisfy certain notice requirements. The final rules also make conforming changes to regulations addressing the reduction or suspension of safe harbor matching contributions under Section 401(m) of the IRC.

Source: Practicallaw.com, November 2013

Final Regulations Issued on Safe Harbor Contribution Suspension

Summary: The Treasury Department has issued final regulations regarding the ability to suspend employer contributions to "safe harbor" 401k and 403(b) plans during a plan year. Employers that maintain safe harbor plans should consider revising their safe harbor notices as soon as possible to reflect the new rules. This is particularly time-sensitive for employers that will be distributing 2014 safe harbor plan notices in November 2013.

Source: Ballardspahr.com, November 2013

IRS Will Allow Mid-Year Reductions of Employer 401k Contributions

Summary: The IRS issued final regulations that permit employers to make midyear reductions or suspensions of safe-harbor matching or nonelective contributions to retirement plans in certain situations.

Source: Journalofaccountancy.com, November 2013

Safe Harbor 401k Plan Design FAQ

Summary: This FAQ covers five basic design questions on Safe Harbor 401k plans including: Should you design a safe harbor 401k plan with a forfeiture reallocation provision, even though all contributions are 100% vested? What are the requirements for providing a brand-new plan with a safe harbor notice? What about providing that notice to a brand-new employee?

Source: McKay Hochman, October 2013

Safe Harbor 401k Contribution Failure

Summary: Safe harbor 401k plans have become the fastest growing type of 401k plan. With the growth of safe harbor 401k plans, the IRS has devoted more attention in EPCRS such plans. However, EPCRS has not addressed corrections for some of the important errors that occur in safe harbor 401k plans. For example, EPCRS does not directly address how to correct a failure to timely make a safe harbor contribution. This article discusses the correction for such a failure.

Source: Relius.net, October 2013

Safe Harbor 401k Chart

Summary: Chart covers some of the basics that an employer needs to know before considering a 401k Safe Harbor Plan. Each employer's goals, plan design, contribution sources and demographics form a unique scenario which the employer will wish to discuss with his or her plan provider before finalizing the decision to make the plan a 401k Safe Harbor Plan.

Source: McKay Hochman, September 2013

Guide to Safe Harbor 401k Plans

Summary: Safe Harbor 401k Plans are very popular with business owners and plan participants alike. The Safe Harbor 401k provisions have some very big benefits and a few drawbacks. This article outlines the rules for Safe Harbor 401k plans and 403(b) plans to help a business owner decide if this design is right for you.

Source: Benefit-Resources.com, September 2013

October 1 Deadline Approaches for New Safe Harbor 401k Plan

Summary: Back in the day, calendar year taxpayers could wait until year end to set up a new plan. This is not the case, however, for an employer wanting to set up a new Safe Harbor 401k plan. Timing matters is one theme that consistently runs throughout ERISA, and one of those matters is the October 1 deadline to set up a new Safe Harbor 401k plan.

Source: Retirementplanblog.com, September 2013

Safe Harbor 401k Establishment Deadlines

Summary: In general, a safe harbor 401k plan must be adopted before the beginning of the plan year and maintained throughout a full 12-month plan year. However, it is possible to establish a calendar year, safe harbor 401k plan as late as October 1st and still obtain the exemption from the ADP and ACP tests in relation to the remainder of the year.

Source: 401khelpcenter.com, August 2013

FAQ on the Automatic Enrollment Safe Harbor 401k

Summary: This is a ten question FAQ dealing with the requirements for an Automatic Enrollment Safe Harbor plan and other common issues related to these plans.

Source: Mbm-inc.com , July 2013

Plan Correction: Improper Exclusion in a Safe Harbor 401k Plan

Summary: How does a plan correct the elective deferrals for an employee who is improperly excluded from a safe harbor 401k plan? And other correction methods for a safe harbor 401k plan.

Source: Relius.net, January 2013

Is Your Safe Harbor Plan in Compliance?

Summary: If your plan provides for one of the safe harbor it is important to ensure that all the related requirements are met to achieve safe harbor status. This article and chart outline the key requirements for each of the safe harbor alternatives. In addition, listed below are some important safe harbor plan watch outs.

Source: ING Qualified Plan Consulting , December 2012

Forfeitures in Safe Harbor Plans

Summary: The IRS has recently put the use of forfeitures in a safe harbor 401k plan into doubt. This article provides background on the issue, discusses the latest IRS position, and explores options for plan sponsors.

Source: Sungard/Relius, October 2011.

Safe Harbor 401k Plan Design

Summary: Since the inception of the safe harbor 401k plans in 1999, safe harbor 401k plans have evolved into one of the most popular 401k plan designs. The obvious advantage of the safe harbor 401k plan is the ability to avoid the ADP and ACP tests. This FAQ address several of the questions practitioners frequently encounter in designing safe harbor 401k plans.

Source: Sungard/Relius, August 2011.

Safe Harbor 401k Cross-Tested Plan Design Issues

Summary: A safe harbor 401k cross-tested plan combines two of the most attractive defined contribution plan designs. The plan design provides (1) enhanced disparity; (2) flexibility; and (3) catch-up contribution potential. Understanding how the safe harbor and cross tested rules interact is essential in designing the combined plan. In this article discusses some of the important issues which affect the plan design.

Source: Sungard/Relius, July 2010.

Good News for Many Safe Harbor 401k Plans

Summary: A plan which utilizes the nonelective safe harbor contribution (typically a 3% fully vested contribution to all eligible employees) was not permitted to suspend the 3% contribution during the year without terminating the plan. Fortunately the IRS published proposed amendments to certain Treasury Regulations to provide an employer incurring a "substantial business hardship" an alternative to terminating the 401k safe harbor plan.

Source: Mitchell, Williams, Selig, Gates & Woodyard , May 2009.

Detailed Information on Safe Harbor Contributions to 401k Plans

Summary: A plan sponsor may elect to contribute safe harbor minimum contributions to a 401k and thereby avoid Actual Deferral Percentage (ADP) testing of elective deferral and Roth elective deferral contributions and/or Average Contribution Percentage (ACP) testing of employer matching contributions. This is a seven page detailed overview on Safe Harbor 401k plans.

Source: Lincoln Financial Group , May 2009.

Retirement Plan Comparison Chart - Revised and Updated

Summary: Popular retirement plan aid that contrasts and compares the features of the following define contribution plans: 401k, Solo 401k, Safe Harbor 401k, SIMPLE 401k, Profit Sharing, SEP IRA, and SIMPLE IRA.

Source: 401khelpcenter.com, January 2008.

Eliminating Safe Harbor Match After Notice is Distributed

Summary: Treas. Reg. 1.401(k)-3(g) and Treas. Reg. 1.401(m)-3(h) permits a safe harbor matching contribution to be changed or eliminated after the safe harbor notice has been distributed.

Source: 401khelpcenter.com, December 2008.

IRS Notice 2000-3 on Safe Harbor 401k Plans

Summary: This notice provides additional guidance regarding 401k plans that are intended to satisfy the 401k safe harbors. This guidance responds to comments and suggestions regarding ways to make it easier for employers both to adopt and to administer 401k safe harbor plans. Located on: 401khelpcenter.com, December 2003.

IRS Notice 98-52 on Safe Harbor 401k Plans

Summary: This notice provides guidance on the design-based alternative or "safe harbor" methods in section 401k(12) and section 401(m)(11) of the Internal Revenue Code for satisfying the section 401k and section 401(m) nondiscrimination tests. Located on: 401khelpcenter.com, December 2003.

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