Safe Harbor 401(k) Plans

Look beyond the traditional 401(k)

Alternative Retirement Options

Everyone knows 401(k) plans – but not everyone knows there are easier options. There are also SIMPLE 401(k)s for small employers, 401(k)s with qualified automatic contribution arrangements (QACAs) and safe harbor 401(k)s. 

These special 401(k)s are exempt from certain nondiscrimination testing requirements that normally apply to traditional plans, making them easier for you to maintain.

Special 401(k)s

  • ADP test: stands for “Actual Deferral Percentage” – looks at how the deferral rate for highly compensated employees compares to that of non-highly compensated employees
  • ACP test: stands for “Actual Contribution Percentage” – compares employer matching contributions between these two groups
  • Top-Heavy test: determines if the account balances of key employees is greater than 60% of the total assets held by the plan

How These Plans Can Help

Adopting a Safe Harbor provision can help a plan in four important ways:

  1. It reduces plan maintenance costs by eliminating annual nondiscrimination testing requirements

  2. It allows highly compensated employees to maximize their deferrals

  3. It relieves a plan’s top-heavy status

  4. Its matching or nonelective contributions represent additional competitive benefits

Finding the Right Fit

Interested in one of the Safe Harbor 401(k) Plans? Let’s figure out the right fit for you:

This plan says the employer must offer a maximum contribution of 4% of the participants’ total compensation in the form of an employer match. Only employees contributing to the plan will receive the Safe Harbor matching contributions.

The non-elective contribution (NEC) is made to all eligible employees, regardless of whether the employee is actively contributing to the plan or not. Employers are allowed to extend eligibility as much as 12 months of service with the organization within all Safe Harbor plans.

This type of 401(k) is an opt-out program with a very specific matching schedule. The employer has the unique ability to implement a two-year vesting schedule on these company contributions.

“The 401(k) website is fantastic. The entire Sentinel team is great. Any questions, any concerns, we get immediate responses. We never have to wait.”

– Fred Berk, Co-Managing Partner, Friedman LLP

Take the Next Step.

To learn more about our retirement services, contact us today by calling (800) 436-6689 or filling out the form to the right.

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