Safe Harbor 401(k) Plans...

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 ($19,000 for 2019 plus an extra $6,000 if you are age 50 or older) as long as certain “safe harbor” conditions are satisfied.


Eliminating the Average Deferral Percentage Test:

The ADP test requirements are met if the plan satisfies either of the following two conditions:

  1. A matching contribution is made which equals at least 100% of the first 3% of compensation deferred and at least 50% of the next 2% of compensation deferred. A modified formula is permitted, so long as the total amount of the match is not less than what the statutory formula would produce, and the rate of match does not increase as the rate of deferral increases. For example, a formula of 100% on the first 4% of compensation deferred would satisfy the requirements. Only employees who contribute to the 401(k) plan receive a matching contribution.

  2. A non-elective contribution of not less than 3% of compensation is made by the employer to all eligible employees, regardless of whether they defer under the 401(k) arrangement. The 3% contribution must be set by the plan document and may provide that this contribution be made to only Non-Highly Compensated Employees. The document may allow the employer the discretion to contribute more. Also, the non-elective contribution may be made to a separate defined contribution plan. (The employer may elect to provide additional contributions subject to vesting. For example, if the 3% non-elective contribution is chosen, that portion must be 100% vested. A discretionary matching contribution may also be made which is subject to vesting.)

To eliminate the discrimination tests, all Safe Harbor contributions must be 100% vested when contributed.

The plan cannot have a last day or hours requirement to be eligible for the minimum matching or non-elective contribution.


EE Deferral
Matching 100% up to 4%
Key EE
EE 1




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