Safe Harbor 401(k) Guide
Explore a 401(k) plan designed to help small business owners address major concerns.
Safe Harbor 401(K) Testimonial
They consistently set reviews with us and our employees. We always know what is going on with our plan.
It's fantastic to work with a financial team that you communicate with regularly and can trust. We highly recommend them to other businesses!
Owner, Custer, Faust & Associates, P.C
What is a 401(k) Safe Harbor Plan?
A safe harbor plan is a 401(k) retirement plan created in the 1996 Small Business Job Protection Act. It was created as a response to the lack of businesses setting up retirement plans due to regulatory complexities.
In a 401(k) Safe Harbor, plans are not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans and in some cases, can be exempt from the top-heavy rules of the IRS Section 416 code.
However, employers must satisfy certain notice requirements to employees.
In addition, any contribution the employer makes to an employee is considered fully vested, allowing the employee to receive the money into their retirement account immediately.
What is a Top-Heavy 401(k) Plan?
A top-heavy 401(k) plan is when the owners or the most highly compensated employees own more than 60% of the plan assets.
If a plan is top-heavy then the employer must pay a minimum of 3% benefit to the accounts of the lower employees.
This ratio needs to be tested every year based on the retirement plan's account balances.
Employers would be concerned about this if they have low participation amongst their lesser compensated employees or if the vast majority of the organization's compensation structure is similar.
4 Types of 401(k) Safe Harbor Plans
There are four different types of 401(k) Safe Harbor Plans. The main difference between these plans is centered around the employer contribution match. The four different types of plans are:
1. Basic Safe Harbor Plan
Requires the employer to match 100% of the first 3% of each employee's contribution.
The IRS states anything above the first 3% employee contribution can be matched at 50% for a max employer contribution of 5%.
In order to receive the match, the employee must contribute to the retirement plan.
2. Non-Elective Safe Harbor Plan
For the Non-Elective Safe Harbor Plan, employers will provide 3% contributions to eligible employees.
This amount is immediately fully invested and is provided to employees even if they do not contribute to the retirement plan.
3. Enhanced Safe Harbor Plan
Within the Enhanced Safe Harbor, the employer matches the first 4% of an employee's contribution at 100%.
However, in order to receive the match, the employee must contribute to the retirement plan.
4. QACA Safe Harbor Plan
The QACA Safe Harbor is an automatic contribution arrangement with special "safe harbor" provisions that exempt 401(k) plans from annual nondiscrimination tests.
The automatic enrollment starts employees at a 3% contribution with a 1% automatic contribution increase each year up to 6%.
Employees have an option to opt-out, however, they must fill out the proper paperwork to do so.
401(k) Safe Harbor Contribution Limits
For each plan, employees can contribute up to:
$20,500 in 2022
$22,500 in 2023
In addition, 401(k) Safe Harbor plans to allow for the catch-up provision. This provision allows anyone 50 years old or older to make an additional $7,500 in catch-up contributions to help save for retirement.
Is a 401(k) Safe Harbor Right for You?
There are three main factors that will contribute to identifying if a 401(k) Safe Harbor Plan is a good fit for a business. These include:
- Small business wants to provide an employee contribution match
- Small business is concerned about nondiscrimination testing
- Small business is concerned about a top-heavy plan
Safe Harbor 401(k) Services:
Our Safe Harbor advisor services focus on helping your employees better prepare for retirement. In addition, we will benchmark 401(K) safe harbor plans to help ensure it is performing to the best of its ability.
We will compare your current retirement plan against other options available. This retirement plan review will:
- Evaluate portfolio performance
- Review plan fees
- Review participant fees
- Review vendor services
- Review ERISA compliance asdfasf
This benchmark will help determine:
- Do you have appropriate fiduciary coverage to reduce liabilities from your 401(k) Safe Harbor?
- How competitive are your fees?
- How well your employees are engaged?
- How well is this plan aligned with your goals?
Langan Financial Group's Safe Harbor 401(k) Advisors
Langan Financial Group's Safe Harbor advisors have over 100 years of experience servicing retirement plans for organizations.
In fact, one retirement plan advisor is a licensed attorney specializing in ERISA law, the law that governs retirement plan regulations.
While this individual does not practice law on behalf of Langan Financial Group, this perspective allows our team a deeper insight into setting up and managing retirement plans for organizations.
Chat with a Safe Harbor Advisor
If your organization is interested in learning more about 401(k) Safe Harbor plans, give us a call to discuss your plan's features. Langan Financial Group can:
- help your organization achieve their goals
- provide educational opportunities to your employees
- work with them one-on-one for financial guidance
- proactive, engaging approach to managing your plan.
Give us a call at 717-288-1880 to see how our local Safe Harbor advisor can help with your retirement plans. Or visit our Safe Harbor advisor contact page to fill out an inquiry.
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Disclosure: Check the background of your financial professional on FINRA's BrokerCheck. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Cambridge and Langan Financial Group, LLC. are not affiliated. Cambridge Investment Research Advisors, Inc. a Registered Investment Advisor. Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC, to residents of: AL, AZ, CO, DE, FL, GA, IA, KY, MD, NJ, NM, NY, NC, OH, PA, TX, VA, WI Cambridge and Langan Financial Group does not offer legal advice. Estate planning services are in regards to your overall financial plan. Always be sure to speak to a legal professional in regards to specific legal matters. Fixed insurance services offered through Langan Financial Group.
Testimonial/Endorsement Disclosure: The testimonials may not be representative of the experience of other customers. The testimonials are no guarantee of future performance or success. All of the testimonials/endorsements are clients with the exception of Steven Martinez of York SPCA. There was no cash nor non-cash compensation for any of the testimonials provided.
© Langan Financial Group
Harrisburg, PA Office
Address: 1863 Center St, Camp Hill, Pa 17011
Phone: 717-288-1880
York, PA Office
Address: 3405 Board Rd, Suite 200, York, Pa 17406
Phone: 717-773-4085
