Plan Sponsor Quick Tips: Crucial Safe Harbor Considerations

Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.

To follow up on our Safe Harbor rules article from last week, there are further requirements that plan sponsors should be aware of. Just like the traditional 401k plan, Safe Harbor plans offer a way for many employees to save for retirement.  The fully vested employer contribution has been used by many employers as a recruitment and retention feature for employees. Below are a few considerations with any Safe Harbor plan:

  • Plan Year: It is mandatory that Safe Harbor plans have a plan year of not less than 3 months.
  • Safe Harbor Notice: The IRS requires all employers provide a notice to all eligible employees no more than 90 but not less than 30 days before the beginning of a plan year in which safe harbor contributions will be made.
  • Maybe Notice (Wait and See): Employers can have their Safe Harbor plans designed in a manner that gives them the option to decide their Safe Harbor status each year. They are still, however, required to provide a notice to the participants. These plans have to fund a safe harbor non-elective contribution and not safe harbor matching contributions.

The list of important considerations does not stop here but can get very complex depending on business needs. An important aspect of Safe Harbor plans is the mere fact that they cannot impose a last day rule or hours of requirement condition. In both cases, if imposed, employees would have to meet certain plan document criteria to acquire benefits.

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

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