Safe Harbor Contributions for Defined Contribution Plans

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Safe Harbor Requirements

Types of Safe Harbor Contributions

1. SH Nonelective Contribution

A safe harbor nonelective requires at least a 3% safe harbor contribution to all eligible plan participants. A nonelective contribution is often the most cost-effective option for plans that are top heavy and make additional annual employer contributions.

2. Basic SH Matching Contribution

A basic safe harbor matching formula requires a match rate of 100% of employee deferrals up to 3% of compensation plus 50% of employee deferrals between 3%-5% of compensation, for a maximum match of 4% of eligible compensation.

3. Enhanced SH Matching Contribution

An enhanced matching formula must also provide a benefit equal to or greater than the maximum allowable basic safe harbor matching contribution (i.e. 4%). For instance,  a match equal to 100% of deferrals up to 4% of compensation meets the enhanced safe harbor matching requirements.

4. Qualified Automatic Contribution Arrangement (QACA)

An automatic enrollment feature automatically enrolls any eligible employee that fails to make an affirmative enrollment election in the plan at a specified deferral rate.

Please contact Watkins Ross if you have questions or would like to discuss implementing a safe harbor provision into your defined contribution plans. You can also tell us here if you have someone in your personal network that would like to discuss this with us.

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