So which benefits package is better for you and your employees: a traditional 401k or a safe harbor 401k plan? Let’s dive into the details and find out… What Is a Safe Harbor 401k? Introduced by the Small Business Job Protection Act of 1996, a safe harbor 401k involves mandatory employer contributions, and when structured correctly, aren’t subject to nondiscrimination testing. The safe harbor 401k was developed to alleviate this issue. It’s common for companies with “top-heavy” 401k plans to run afoul of the Employee Retirement Income Security Act (ERISA), especially smaller firms where HCEs (Highly Compensated Employees) may make up a significant portion of the staff. By shielding your company from nondiscrimination testing, a safe harbor plan allows employees (and employers) to maximize their retirement savings, thereby saving on taxes.Īs a business owner, are you interested in offering a 401k plan to your employees? Wondering which type of 401k plan is best for your company? Concerned that you might invest the time, energy and money to set one up, then end up being the only one making contributions? Worried this means you won’t be able to meet compliance requirements and lose out on potential tax savings? These concerns are entirely valid! Setting up a safe harbor 401k plan can prove a wise business decision for many employers.
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