What’s a “safe harbor” 401(k) plan?

  1. A “safe harbor” 401(k) plan allows an employer to skip certain testing requirements that might otherwise constrain certain employees from being able to defer the maximum dollar amounts. To secure this relief, the plan must either:
    • Match deferrals with a formula as favorable as dollar-for-dollar on the first 3% of compensation deferred and fifty-cents on the dollar for the next 2% of compensation deferred (in total a 4% match); or
    • Contribute at least 3% of compensation to every eligible employee whether they defer or not.
  2. Safe harbor contributions cannot have “allocation conditions”, e.g., last day of the year employment, or hours of service, in order to receive an employer contribution
  3. You are fully vested in safe Harbour contributions with the exception of “additional, discretionary” safe-harbor contributions.