401(K) Safe Harbor Plans


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Generally stated, safe harbor 401(k) plans are similar to traditional 401(k) plans, but are structured in a way that some of the otherwise applicable annual nondiscrimination tests can be avoided. Legally speaking, a safe harbor 401(k) plan is otherwise identical to a traditional 401(k) plan, except that it must meet specific additional requirements under the Internal Revenue Code, such as:

The main benefit to the employer of providing a safe harbor 401(k) plan is that, assuming all requirements are met (including the annual notice requirement, if applicable), participant elective deferrals and any safe harbor employer contributions are not subject to certain of the complex annual nondiscrimination tests that apply to traditional 401(k) plans such as ADP/ACP Testing and Top-Heavy Testing.

Special Notice Requirements Applicable to Restrictions on Mid-Year Amendments

The purpose of the regular safe harbor notice described here is to generally describe to eligible employees the terms of the plan, including the safe harbor contributions that will be provided, for the upcoming plan year. In order to ensure that those plan terms continue for the entire plan year, the IRS does not generally permit safe harbor plan terms to be amended mid-year, unless the mid-year changes are expressly permitted under IRS guidance.

A plan sponsor should always consult with legal counsel to determine if a desired mid-year plan amendment is permitted under a safe harbor plan. The following is a partial list of some of the more common exceptions with respect to mid-year amendments which are permitted under IRS guidance:

If the mid-year change affects the information that was previously provided in the plan’s annual required safe harbor notice, the plan sponsor generally must:

The safe harbor notice may be delivered electronically. The requirements for electronic delivery are set forth in Treas. Reg. § 1.401(a)-21. Additional information is also available in the reference material.

One optional variation on the non-elective contribution safe harbor is the “wait-and-see” approach (see here under “Non-elective Contribution Safe Harbor”). Under this alternative, the employer typically waits until close to the end of the plan year, when it can run preliminary nondiscrimination tests for the plan year, to decide whether it would be beneficial to amend the plan to provide the 3% safe harbor non-elective contribution for that year (i.e., whether the plan might be expected to fail one or more of the tests unless it were amended to be a safe harbor plan).

Safe Harbor Arrangements Exempt From Annual Notice Requirement

Effective on and after January 1, 2020, the regular annual notice requirement mentioned previously and described here no longer applies to safe harbor plans providing a safe harbor non-elective contribution equal to at least 3% of participant compensation.