401(k) plans can be set up in a variety of ways. A safe harbor plan uses a structure that automatically satisfies the Internal Revenue Service's requirements for nondiscrimination on elective deferrals and employer matching contributions. If you are considering setting up a safe harbor plan for your company, you will need to know the rules under which you must operate to avoid violating the law.
Vesting of Contributions
All employer contributions must be fully vested when made. This means that an employer-matching contribution must be made available to the employee as soon as it is deposited into the employee's retirement account. If the employee leaves the company, he will be allowed to take all of his retirement account with him.
Employers must provide matching contributions. However, they have a choice as to how they provide them. The employer can provide a non-elective contribution of at least 3 percent of the employee's pay or a matching contribution. A non-elective contribution means that the employee does not contribute any of his own money to the retirement plan. The matching contribution, under safe harbor rules, can be a dollar-for-dollar match on contributions made by the employee up to 4 percent of the employee's pay, or a dollar for dollar match on employee contributions up to 3 percent of employee pay or a match of 50 cents on the dollar for employee contributions between 3 and 5 percent of compensation.
Notice To Employees
Employees must be given proper notice every year under IRS regulations about their safe harbor plan. The plan must outline the rules and regulations of the plan and must outline the employee's rights under the plan.
- U.S. Department Of Labor: 401(k) Plans
- Internal Revenue Service: 401(k) Safe Harbor Rules
- "Practicing Financial Planning for Professionals, practitioner's 10th edition;" Sid Mittra, Anandi P. Sahu, Robert A. Crane; 2007
- Photo Credit stock market analysis screenshot image by .shock from Fotolia.com
What Is a Safe Harbor Statement?
Before investing in a company, prospective shareholders want to know the financial condition of the company and projections for the future. While...
What Is a Safe Harbor Savings Account?
There are various types of 401(k) retirement plans for businesses to offer their employees. One option is the Safe Harbor 401 (k)...
How to Find Safe Investments Today
Let's be clear about one fact: "There is no such thing as a perfectly safe investment." There are, however, a number of...
Hardship Withdrawal Rules for a Fidelity Investments 401(k)
Hardship Withdrawal Rules for a Fidelity Investments 401(k). Fidelity Investments operates a number of different types of 401(k) plans that all must...
Do You Get the Market Value of Your 401(k) When You Are Vested?
Investing in a 401(k) plan can be a little confusing in the beginning. One of the many points of understanding you will...
Is Money Safe in a Roth IRA?
How safe your money is in a Roth IRA depends on how you invest it. A Roth is not an investment itself....
Fidelity 401(k) Hardship Withdrawal Rules
Fidelity 401(k) Hardship Withdrawal Rules. Withdrawing money from a Fidelity 401(k), before you reach retirement age, is not as simple as putting...