Maximize Savings with a Safe Harbor Plan…And Soon

safe harbor

Safe harbor 401(k) plans can be a win-win for employers who want to maximize tax savings and retain employees. There is still time to reap the benefits for 2019.

1. Safe harbor basics

A safe harbor is like a traditional 401(k), but the employer must contribute, and contributions become fully vested when made. Contributions can either be limited to employees who make deferrals or offered to all eligible employees.

2. The trade-off may be worth it

Unlike traditional 401(k) plans, safe harbor plans automatically pass a number of required tests in order to keep your plan tax qualified and avoid other penalties and costs. These plans can be a great choice for small businesses that may have trouble passing nondiscrimination testing. For example, a family-owned or small business with more highly compensated employees relative to “rank and file” or non-highly compensated employees may otherwise have difficulty passing compliance tests.

3. More good news

The business owner can contribute the maximum annual deferral amount to his/her own 401(k) plan ($18,500 plus any catch up contributions), receive additional savings from the company’s matching contributions (they’re an “employee” too) and, come tax time, the business can deduct all matching contributions (up to the $55,000 IRS limit).

4. There is still time to maximize the savings for 2019

Safe harbor plans must be in effect three months prior to the plan year-end date, which means eligible employees must be able to make salary deferrals starting no later than the payroll period that ends on or after October 1 of the plan’s first year.  This means plan sponsors must make decision and sign necessary documentation by September 1.

5. If you already have a plan, you can take advantage too!

If you offer a different plan, but would like to take advantage of Safe Harbor benefits, here are dates to know:

  • By or before November 30, 2019: Your provider can amend your plan or start a new plan with a safe harbor provision for the following year
  • December 1, 2019: Your employees receive a 30-day notice of plan revisions
  • January 1, 2020: Safe Harbor provision takes effect and exempts the plan from nondiscrimination testing

Overall, there are benefits to any type of retirement offering, but a safe harbor plan can be a smart decision for many companies, particularly for small business owners. If you have any questions about whether a safe harbor plan is right for you, reach out to at any time.

What Kind of Retirement Plan is Best for Your Plan Sponsor Client?

It’s that time of year again. Open enrollment at most organizations is now in session and  plan sponsor clients are considering offering a retirement plan to their employees. Whether your clients’ goals are to maximize their own pre-tax savings or offer meaningful, yet flexible benefits to their employees, there are many 401(k) or other options to meet their needs. Leverage this guide to help sponsors get the right type of plan based on their unique goals and business structure.


If a plan sponsor wants to…
…they should consider the following plan type(s):
Maximize the owner’s contributions 401(k) with a profit share feature

“Profit sharing” is a misnomer – the employer does not need to actually share “profits” from the business, but it would need to make some kind of contribution to each participant account.

Solo or individual 401(k) plan

Owner-only businesses with just one employee can create a Solo or Individual 401(k) plan. These plans do not  require  a  5500 if they have less than $250,000 in assets.

Cash balance plan

Employers who want to shelter more than the 401(k) plan IRS limit of $55,000 per year can offer a cash  balance  plan,  which  may allow employers to shelter more than $200,000. There are trade- offs to these plans as well as additional requirements  such  as higher expenses and more reporting and notice obligations.

Minimize the employer’s fiduciary liability 401(k) plan that meets section 404(c) ERISA requirements

For this goal, consider creating a 401(k) plan that meets the requirements of ERISA section 404(c). By allowing participants to self- direct their investments, plan sponsors can protect themselves from liability for any investment losses.

Maximize benefits for a certain group of employees, such as employees in a specific department 401(k) plan with a profit sharing component

If the demographics of your workforce would be suitable to a “new comparability” contribution, you could structure your profit sharing arrangement to reward certain groups of employees with a higher employer match


Provide a valuable employee benefit Plan with inclusive eligibility rules

Your plan can include liberal eligibility rules that would allow more employees to participate. This could mean making employees eligible earlier in their tenure or opening up options for your part time workforce.

Maximize employee participation Plans with matching and/or auto features

Consider providing matching contributions to encourage participation. Plan sponsors with uncertain cash flows can have flexibility in the amount and timing of their contributions. Additionally, auto features such as automatic enrollment and auto increase  have  shown  to  have a significant effect on participation rates. In addition, allowing rollovers from other retirement plans, catch-up contributions, and Roth contributions can also help.

Offer flexibility in plan contributions Any 401(k)

All 401(k) plans allow sponsors to make a discretionary match to the plan if and when financial conditions allow.

Minimize IRS testing requirements 401(k) with safe harbor

Consider a 401(k) safe harbor or a safe harbor automatic enrollment arrangement. Keep in mind that employer contributions to a safe harbor are 100% vested and are non-discretionary, so if the company has a bad year, the employer still needs to make the contributions.

Attract and retain college- debt ridden employees 401(k) with student loan repayment

Consider a 401(k) plan that incentivizes employees to participate in the plan so they can save for retirement while also paying off student loan debt. The IRS may now allow plans with employer matches for student loan repayments. The plan would have to meet certain legal requirements and likely receive specific IRS approval.