Safe Harbor Plan


If you would like to eliminate discrimination testing on your elective deferrals (ADP test), and at the same time allow your employees to maximize their deferrals (limited to 16,500 for 2011) you may want to consider a safe harbor plan.


One option would be to make a 3% nonelective employer contribution to your plan. The 3% nonelective alternative is generally the preferred safe harbor plan design for a top heavy plan, because the same 3% nonelective contribution will satisfy the employer’s top heavy contribution obligation as well as the safe harbor contribution. In addition, the safe harbor contribution eliminates ADP discrimination testing. This option is a wonderful opportunity for senior management and other highly compensated employees to maximize their contributions to the plan.


Things to be considered when deciding to provide this type of safe harbor plan:

  1. Your plan document would require an amendment.
  2. Contributions are 100% vested at all times.
  3. The plan may not impose a “last day” or hour of service accrual requirement for safe harbor contributions
  4. If your plan contains a provision for hardship withdrawal, the safe harbor contributions would be restricted and unavailable for withdrawal.
  5. You must provide a timely, written notice to eligible employees before each safe harbor plan year. The notice must be understandable by the average participant, and describe the employees rights and obligations under the plan. It must set forth:
    1. The safe harbor nonelective formula to be used by the plan
    2. Any other required or discretionary contributions provided for in the plan
    3. If there are multiple employers plans, to which plan the safe harbor contribution will be made
    4. Compensation subject to deferrals
    5. Distribution
    6. Requirements for deferrals
    7. Vesting