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A Safe Harbor 401(k) plan is similar to a traditional 401(k) plan, but, among other things, it must provide for employer contributions that are fully vested when made. These contributions may be employer matching contributions, limited to employees who defer, or employer contributions made on behalf of all eligible employees, regardless of whether they make elective deferrals. Neither of these choices can impose a year end requirement to receive the contribution. The safe harbor 401(k) plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans and employees can defer up to the maximum deferral limit allowed by law. These plans are also exempt from the top-heavy rules of section 416 of the Internal Revenue Code in years where the employer does not provide any additional contributions above and beyond the Safe Harbor requirement.

Employers sponsoring a Safe Harbor 401(k) plan must satisfy certain notice requirements. The notice requirements are satisfied if each eligible employee for the plan year is given written notice of the employee’s rights and obligations under the plan and the notice satisfies the content and time requirements.

Safe Harbor 401(k) plans are a good solution for employers who have trouble passing the nondiscrimination tests that are required to be performed in a traditional 401(k) plan.


...We're Thinking Forward