What is a Safe Harbor 401(k) Plan?

A “Safe Harbor” 401(k) Plan is a type of 401(k) plan that is designed to automatically pass the otherwise applicable nondiscrimination (i.e. ADP/ACP) and top-heavy tests. To qualify as a “Safe Harbor” plan, a 401(k) plan must satisfy certain requirements including (but not limited to) the following three primary requirements:

  1. Minimum contributions -with no allocation requirements and--with only limited exceptions--are based on a 12-month plan year;

  2. Full (100%) and immediate vesting; and

  3. Specific required notices to all eligible employees.

There are three types of safe harbor (“SH”) employer contributions:

  1. Basic Matching: 100% of the first 3% of compensation deferred plus 50% of the next 2% of compensation deferred.

  2. Enhanced Matching: More generous than Basic Matching formula but the rate of match may not increase as deferral percentages increase and deferrals in excess of 6% of compensation are not matched.

  3. Nonelective (“NEC”): Guaranteed or contingent (i.e. “maybe”) formula of at least 3% of compensation regardless of whether eligible employees make 401(k) deferrals.

The SH notices requirement for eligible employees pertains to both timing and content as follows:

  • Timing: Generally, must be provided within a reasonable time (not less than 30 days or more than 90 days) before initial entry dates and the beginning of each plan year.

  • Content: Must be written to be understood by average employees and must be sufficiently accurate and comprehensive to inform eligible employees of their rights and obligations under the SH plan.

In consultation with their 401(k) plans’ service providers and/or ERISA counsel, plan sponsors should consider if adopting SH design features would be a good fit for them. Every plan sponsors’ philosophies, goals, demographics and financial situations are unique and must be examined before committing to the requirements applicable to SH 401(k) plans.


Please feel free to contact our Firm if you would like to discuss any of the foregoing information in greater detail. We would welcome the opportunity to consult with you.



© Boutwell Fay LLP 2018, All Rights Reserved.This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us.The information contained in this article is effective as of June 29, 2018.



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