The Benefits of a Safe Harbor Match Program for your Retirement Plan

If a company commits to a Safe Harbor matching contribution program, then highly compensated employees (HCE’s) can contribute the maximum from their paychecks ($22,500 in 2023, can be made as pre-tax and/or Roth employee deferral contributions + $7,500 for anyone age 50+).
There are 3 IRS approved Safe Harbor matching programs, of the 3 programs the 4% Safe Harbor match program tends to result in the lowest cost to the company (with exceptions, including if you have a sizeable high wage-earning work force), based on our longstanding work with your industry. 
What is a safe harbor 401(k) plan?

 A safe harbor 401(k) plan ensures all eligible plan participants receive an employer contribution. In exchange for making the fixed employer contribution, employers are automatically given a pass on 401(k) non-discrimination testing.
Basic employee deferral contribution limits for safe harbor 401(k) are the same as a traditional 401(k) plan. In 2023, these contribution levels are $22,500 ($30,000 for those aged 50 and over). What’s more, safe harbor provisions enable owners and highly compensated employees (HCEs) to maximize their own deferral contributions without risking non-discrimination testing failure.
Safe harbor 401(k) plan deadlines.
Safe harbor plans have strict deadlines. A new Safe Harbor 401(k) Plan must be in place on or before October 1, if you wish for the safe harbor provisions to be effective for the current year. An existing 401(k) plan may be amended to add a safe harbor design or to change the safe harbor design already in place. The type of safe harbor design permitted depends on the timing of the amendment. Existing 401(k) plans cannot add or modify safe harbor match design provisions in the middle of the year while a nonelective safe harbor contribution design has more flexible timing requirements. 
What are the requirements of a safe harbor plan?
Any 401(k) plan can be designed to include a safe harbor contribution. When considering a safe harbor plan design, employers should understand that the employer contribution is a fixed, mandatory contribution to at least all non-highly compensated employees. In most cases, that employer contribution is required to be immediately 100% vested. 
The three safe harbor contribution formulas:
There are three basic “types” of safe harbor 401(k) plans. You must meet ONE of the following for your plan to be considered a safe harbor plan:
  1. Basic match: Company matches 100% on the first 3% of deferred compensation, plus a 50% match on the next 2% of employee deferred compensation. 
  2. 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 100% match on the first 4% of deferred compensation. 
  3. Non-elective: Company contributes 3% or more of each employee’s compensation, regardless of whether the employee also makes elective deferrals.
 The employer safe harbor contribution must be immediately 100% vested.

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