Here is why. For example--for purposes of deferrals, compensation is defined as all compensation within the meaning of Code §415(c)(3), including bonuses. — one of the checks that the IRS puts on 401(k) plans to make sure they’re equitable to all employees. Ultimately, it’s a nice thing to do to help employees save more money in their retirement funds. A Safe Harbor 401k plan is a special type of retirement plan that is flexible, cost effective and extremely popular. have it as an option, as it’s generally recommended for most small companies. If you follow the deadlines above, you can take steps to have it launched for the following year. This is why the IRS administers. Here are some of the advantages that you can realize by investing in a safe harbor 401k plan. That means employees immediately own 100% of the employer contribution without progressive periods of ownership or delays. That figure shows, business owners believe in safe harbor 401(k) plans. By The Human Interest Team - May 23, 2020. Variable-Benefit Plan Variable-Benefit Plan A variable-benefit plan is a type of pension plan wherein the payout that the beneficiary is entitled to is subject to changes according to the performance Safe Harbor Safe Harbor A safe harbor is a provision in law or regulation that affords protection from liability or penalty or reduces liability if certain conditions are met. Adopting a Safe Harbor 401 (k) plan allows the business to automatically pass those compliance tests and allows for the maximum contributions to be made by all employees. Two of the three types of Safe Harbors involve employer matches, so you may sometimes hear people refer to a "Safe … Your current plan is “top-heavy,” or has 60% of more of the plan assets allocated to key employees. If your company’s 401(k) plan has recently failed non-discrimination or compliance tests and you want a stronger guarantee of performance in the future. Remember that the government really wants to encourage and incentivize 401(k) plans by offering lots of tax benefits to both employers and employees; however, it also wants to make sure that employers are not taking advantage of these great tax benefits while excluding employees. Past performance is no guarantee of future results, and expected returns may not reflect actual future performance. This is why the IRS administers 401(k) non-discrimination testing. If an S-Corp pays matching contributions to a shareholder as part of a Safe Harbor 401k plan, does the shareholder get the benefit of the deductable expense or is it a k-1 add back item? Working backward from all these deadlines. What is nondiscrimination testing? Unlike other types of matching, in which employers can choose a certain vesting schedule. A traditional 401k plan allows you to contribute as much as $18,000 and an additional $6,000 if you are above the age of 50. If you think a safe harbor option is right for your plan, contact us. This test calculates whether the entire company's 401(k) plan assets account for more than 6% of all total company 401(k) plan assets. A Safe Harbor 401(k) plan is a type of 401(k) with an employer match that allows you to avoid most annual compliance tests. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers. A major perk of this particular plan is that it also helps companies pass 401(k) non-discrimination testing — one of the checks that the IRS puts on 401(k) plans to make sure they’re equitable to all employees. Those who contribute to a Safe Harbor 401 (k) benefit from a lower tax bill and potentially far greater savings growth into the future. Provide a tremendous incentive for employees to save for their future. Having two key employees who want to contribute heavily to their 401(k) can make your company’s plan top-heavy. to request more information about Human Interest. In a SH Plan, HCEs generally are permitted to contribute the maximum deferral amount and receive an associated match that is exempt from the restrictions normally … Action Alerts PLUS is a registered trademark of TheStreet, Inc. traditional 401(k) plan has helped millions, ensure a company 401(k) plan doesn't unduly favor. Here’s why: Remember that the government really wants to encourage and incentivize 401(k) plans by offering lots of tax benefits to both employers and employees; however, it also wants to make sure that employers are not taking advantage of these great tax benefits while excluding employees. By and large, the biggest benefit to companies in opting for safe harbor 401(k) plans is to avoid the IRS non-discrimination rules testing mandates. . For purposes of calculating the safe harbor matching contributions, bonuses are excluded. When companies sign on to this 401(k) plan model, they're essentially being granted a safe harbor from not only the non-discrimination testing mandate, but also the steep downside of getting on the wrong side of Uncle Sam by failing any of those tests. The safe harbor 401(k) is designed specifically to create an employer-sponsored retirement plan that aids every employee - not just the highly compensated ones - in benefiting from a 401(k) plan. Anyone who currently has a 401(k) plan can offer a safe harbor match, or an employer matching contribution plan. However, the downside is that it’s not free and comes at a slight cost in terms of administrative work, as well. is the date on which existing 401(k) plans can begin anew as safe harbor 401(k) plans. Read on for answers to frequently asked questions about Safe Harbor 401(k) plans. That means employees immediately own 100% of the employer contribution without progressive periods of ownership or delays. To be granted safe harbor by the IRS, employers' nonelective contributions must be at least 3%. Oct. 1 is the deadline to launch a new safe harbor 401(k) plan for the current calendar year. Most U.S. businesses rely on safe harbor 401(k) plans to stay compliant with the Internal Revenue Service and to ensure that each employee, regardless of salary and income, can maximize their company 401(k) plan experience. In offering safe harbor 401(k) plans to workers, companies are avoiding the onerous Internal Revenue Service non-discrimination plans. The company will not have to restrict employee contributions from HCE (highly compensated employees) and company owners or monitor contributions from NHCE (non-highly compensated employees). To ensure that people in all lines of work have access to our market insights, commentary newsletters... 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