Q&A: What is a Safe Harbor 401(k) Plan?

What is a Safe Harbor 401(k) Plan?

A Safe Harbor 401(k) plan is like a traditional 401(k), but it includes a mandatory employer contribution and is deemed to meet IRS nondiscrimination testing. With Safe Harbor, highly compensated employees and owners can maximize their contributions ($19,000 or $25,000 if over age 50 in 2019) without the risk of refunds.

Is Safe Harbor right for my plan?

Safe Harbor plans work best for employers that have the following needs:

  1. The employer wants to help highly compensated employees reach the annual 401(k) deferral or contribution limits
  2. The Plan has failed nondiscrimination testing in the past and has made corrective distributions or employer contributions (refunds) to bring the plan into compliance
  3. The Plan has low participation among non-highly compensated employees and non-key employees
  4. The employer has limited HR resources available to administer the plan

Safe Harbor may add additional costs for employers in terms of increased employer contributions, but save time, minimize administrative challenges, and make it easier for your key employees to maximize their 401(k) contributions.

What are the options for employer contributions?

To meet the Safe Harbor requirements, the IRS mandates that plan sponsors follow 1 of 3 contribution formulas.

Contribution Formulas Definition Advantage
Basic Match A 100% employer matching contribution to all employee salary deferrals up to 3% of compensation, and then a 50% match on the next 2% of their compensation Good option for employers looking to encourage employees to defer more of their own dollars
Enhanced Match A 100% matching contribution (or more) to all employee deferrals on at least 4% (6%) max) of their compensation Good option for employers calculating the match contributions “in-house”
Non-Elective Contribution A 3% contribution to all eligible employees, regardless of how much they defer


Option if employers intend to  1) provide all employees a contribution or 2) provide a discretionary profit sharing contribution to select owners or highly compensated employees


The above contribution formulas are the minimums. Plan Sponsors can provide more generous contributions if they wish.

What are the requirements to implement and administer a safe harbor plan?

  1. Employers must add safe harbor at least 30 days before the beginning of a plan year (for most plans, this is November 30)
  2. Employers must provide a contribution annually
  3. An annual participant notice is required to be provided to all participants 30-90 days before the beginning of each plan year (B&Co can assist)
  4. All safe harbor contributions under a traditional safe harbor 401(k) plan must be immediately 100% vested
  5. Employers can change or remove the safe harbor provision annually
  6. Additional discretionary contributions made by the employer outside of the safe harbor, will require compliance testing

Safe Harbor 401(k) plans may be an added expense for employers, but can be a great option to minimize administrative headaches and red tape imposed by IRS compliance testing, while helping employees save for retirement. To learn more and explore if safe harbor is right for your plan, please contact the B&Co team.