The Benefits of a Safe Harbor 401(k) Plan: A Strategic Choice for Employers and Employees

In today’s competitive job market, a retirement plan can be a key differentiator between you and a competitor for attracting and retaining top talent. Among the most popular retirement savings options is the 401(k) plan. While they are a great vehicle when it comes to saving for retirement, some employers find that traditional 401(k) plans come with complex administrative requirements, especially around nondiscrimination testing. In a traditional 401(k), this testing can limit the amount that a business owner or other highly compensated employees can save.

A Safe Harbor 401(k) plan is a variation of the traditional 401(k) plan designed to automatically satisfy certain nondiscrimination requirements. These requirements ensure that highly compensated employees (HCEs) do not disproportionately benefit from the retirement plan when compared to non-highly compensated employees (NHCEs). A Safe Harbor plan essentially eliminates the need for annual nondiscrimination testing, which can be a complex and time-consuming process for employers. If these tests are failed, you or your key employees may be forced to take a refund from the plan, limiting what you are allowed to defer for yourself. With a Safe Harbor plan, employers are required to make mandatory contributions to employees’ accounts, ensuring fair participation and benefits across all salary levels. There are 2 main Safe Harbor contribution options available:

• 3% Non-Elective Contribution- This option is a contribution from the company equal to 3% of an employee’s annual compensation. This is a contribution to all employees eligible for the plan regardless of if they are participating in the plan or not.
• Traditional Safe Harbor Match- This option is a match formula where the employer will match 100% of an employee’s contributions up to 3%, then will match 50% of the next 2% deferred. This means that if an employee is deferring 5% or more, they will receive a 4% match from the company.

By offering a Safe Harbor 401(k), a business owner can create a more attractive benefits package for themselves and their team. Employers benefit from simplified compliance and reduced administrative burdens, while employees enjoy more robust retirement savings with guaranteed employer contributions. For businesses looking to streamline their retirement offerings while fostering a strong culture of employee support, the Safe Harbor 401(k) in the PIA’s retirement program presents an effective and efficient solution.

If you have any questions or would like to talk further about the PIA’s 401(k) program, we are here to help!

Matthew Schock, CPFA®, (k)RS®
Target Retirement Solutions
17715 Gulf Blvd. Unit 601, Redington Shores, FL 33708
203-924-5420