Welcome! | Ask A Question

 
 
 
 
Question

Asked 11/19/2008

Can an employer contribute less than a 3% safe harbor non-elective contribution?

If an employer notifies participants that they MAY contribute a 3% nonelective contributions - then provides a supplemental notice, can the contribution be 2% of compensation? Will the plan remain safe harbor if they only contribute 2%?

 
 
 
 
 
Answers

Answer 1/1 - Submitted 11/22/2008

From the below information from irs.gov, it seems they can do this.

Safe harbor 401(k) plans. 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. The safe harbor 401(k) plan is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans.

Safe harbor 401(k) plans that do not provide any additional contributions in a year are exempted from the top-heavy rules of section 416 of the Internal Revenue Code.

Employers sponsoring safe harbor 401(k) plans 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 timing requirements.

In order to satisfy the content requirement, the notice must describe the safe harbor method in use, how eligible employees make elections, any other plans involved, etc. Income Tax Regulations section 1.401(k)-3(d)(2), contains information on satisfying the content requirement using electronic media and referencing the plan's Summary Plan Description.

The timing requirement requires that the employer must provide notice within a reasonable period before each plan year. This requirement is deemed to be satisfied if the notice is provided to each eligible employee at least 30 days and not more than 90 days before the beginning of each plan year. There are special rules for employees who become eligible after the 90th day. See Income Tax Regulations section 1.401(k)-3(d)(3).

Both the traditional and safe harbor plans are for employers of any size and can be combined with other retirement plans.

 
 
 
 
Answer This Question Now

Type your Answer in the box below and post your answer.

Learn more about how this works

 
 
 

Related Questions (Ask a New Question)

 
How often is an employer required to provide 401k safe harbor/profit sharing statements to its employees?

My employer is no longer matching our contributions. all employees are now in a "safe harbor 401k" in which 3% of an employee's salary is deposited once a year. all employees were forced to enroll! the 3% is placed in a profit sharing account that is separate from the elective salary...

See Answers

 
Discontinuing employer match of employee 401k contribution.

We are a small company who offer the safe harbor 401k benefit. one of the expenses we will need to cut is the employer match of employee 401k contribution. we hope that this suspension would last for only one year. are there any repercussions?

See Answers

 
401k termination of safe harbor plans

I have a client who wants to terminate a safe harbor 401k plan before the end of the plan year, which is also the end of the calendar year. what safe harbor contribution must be made by the employer? is it based on the 3 employee's current year to date salary; what they are expected to make for...

See Answers

 
Related Questions

How often is an employer required to provide 401k safe harbor/profit sharing statements to its employees?


My employer is no longer matching our contributions. all employees are now in a "safe...

 

Discontinuing employer match of employee 401k contribution.


We are a small company who offer the safe harbor 401k benefit. one of the expenses we will...

 

401k termination of safe harbor plans


I have a client who wants to terminate a safe harbor 401k plan before the end of the plan...

 

Small business 401(k) and safe harbor


I own a small business (sole proprietorship) that employs 4 other people. i earn around $70k...

 

Can i contribute to a previous employer's 401k plan if my current employer does not yet have one?


I have taken a new job with a start-up company that does not yet have a 401k plan. can i take...

 

Are safe harbor contributions made by the company considered part of the total maximum investment that can be made?


Are safe harbor contributions made by the company considered part of the total maximum investment...

 
 

See more 401k questions

 
 
 
 
 

Ask A Question

Ask a new question about
401k: