For those employers who have Top Heavy issues with Highly Compensated Employees (HCE's), there is an option that allows the plan to bypass the top-heavy (ADP and ADC) test. Safe Harbor plans can be structured using one of two options – Safe Harbor Match, or a non-elective contribution.

Safe Harbor Match uses a matching formula of 100% for the employees' first 3% and a 50% match for contributions from 3% to 5%. In other words, if an employee contributes 5% or more of pay to the 401(k), the employer has to make a contribution of 4% on their behalf. This formula only applies for all eligible employees that actually make contributions to the plan (including HCE's). Though Safe Harbor plans can be combined with other profit sharing plans, the matching contributions cannot be counted towards other profit sharing contributions. Additionally, all employer contributions are immediately 100% vested.

Safe Harbor non-elective plans require a 3% contribution to all eligible employees regardless if they participate in the 401(k) or not. Like the Safe Harbor Match plan, all contributions are immediately 100% vested. Unlike the Safe Harbor match though, the 3% contribution can be used towards other profit sharing allocation plans such as New Comparability (example: If the New Comparability contribution calls for a 5% contribution to all non-HCE's and the plan is using the non-elective Safe Harbor plan, then the employer would only have to make an additional 2% contribution for those individuals. The additional 2% can also be subject to a vesting schedule).

Both Safe Harbor plans cannot be started after the first of the year and a 30 - 90 day notice to all employees is required. The exception to this is if there is no existing plan currently in place, however there has to be at least three months left in the plan year and the Safe Harbor provisions must be applied at start of the new plan.

Please Complete an Employee Census if you are interested in this plan.