A Safe Harbor 401(k) Plan is a specific type of 401(k) plan that encourages employee participation and that provides employers more leniency in setting up plans, without concerns about discrimination in favor of highly compensated employees.
The Safe Harbor 401(k) Plan is ideal for employers who wish to eliminate the burden of the discrimination testing associated with the traditional 401(k) plan. This type of plan allows all employees to contribute up to the maximum yearly deferral ($18,000 for 2017 plus an extra $6,000 if you are age 50 or older) as long as certain “safe harbor” conditions are satisfied.
New plans: The Safe Harbor provisions must be in place for at least 3 months if you are adopting a new 401(k). So if you are starting a new calendar year plan, the plan must be in place no later than October 1 to include Safe Harbor provisions for that first plan year.
Existing plans: Safe Harbor provisions can only be added to an existing plan before the beginning of the plan year, and they must be in effect for the entire year. Safe Harbor provisions cannot be changed or eliminated during the year except if the plan is terminated completely. In the event of plan termination, the Safe Harbor contribution up through the date of termination would still apply.
The plan document must call for the specific provisions for the Safe Harbor contributions, so these provisions will be included in the Summary Plan Description provided to the eligible employees.
Annually, 30-90 days before the beginning of the plan year the employer must provide to the employees a Safe Harbor Notice. This Notice includes the following:
Employers must deliver the Safe Harbor notices to all employees who are eligible for the plan. Notices may be delivered electronically, by hand, or by regular mail. The employer should track the delivery list, method and timing of delivery for their records. This information will be requested upon audit by IRS or DOL.
Safe Harbor and 401(k) Provisions to an Existing Profit Sharing
Plan: IRS Notice 2000-3 changed the requirements for
adding Safe Harbor and 401(k) provisions to an existing profit sharing plan.
The plan may add an elective deferral feature and the accompanying Safe Harbor
contribution to a profit sharing plan no later than 3 months before the end of
the plan year. The Safe Harbor matching or non-elective contribution is
required only for the months during which the Safe Harbor provisions are
effective, but may be retroactive to the first day of the plan year if the plan
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