Armada Plus Safe Harbor 401(k) Option

The IRS introduced Safe Harbor Plans in 1999 to remedy the problem of failing discrimination testing. The plan was designed to encourage maximum participation by HCEs and avoid the failure of ADP/ACP testing. Safe Harbor 401(k)s are ideal for smaller companies whose HCEs would like to maximize deferrals. It is also a good choice for companies that have a payroll gap between the salaries of HCEs and non-HCEs.

Safe Harbor plans offer flexibility similar to that found in non-Safe Harbor Plans; however, there are significant differences. Safe Harbor Plans require a mandatory matching contribution, called a qualified non-elective contribution (QNEC), and 100% immediate vesting. In addition to the mandatory matching contribution, plan sponsors can make profit sharing contributions and attach a vesting schedule.

SAFE HARBOR 401(k) Plan Overview
Employer Eligibility Businesses, partnerships, S-Corps, C-Corps, and certain nonprofit groups (no governmental)
Employee Eligibility Plan design decides eligibility.

Maximum criteria are:
  • 1 year of service
  • Age 21
  • 1000 hours worked per year (full time)
  • Union employees can be excluded
  • Non-resident aliens can be excluded
Type of Contribution
  1. Employee Deferral
  2. Mandatory Employer Match
  3. Qualified Non-Elective Contribution
Employee Deferral Limit The lesser of 15% or $11,000 (2002)
Employer Contribution Either:
  1. Qualified Matching Contribution:
    Mandatory Match
    Employer matches $1/$1 up to 3% and then $.50/$1 on the next 2% of compensation for participating employees

    - Or -

  2. Qualified Non-Elective Contribution:
    Plan sponsor makes a contribution across the board to all eligible employees of 3% of compensation, regardless of participation
Employer Match Limit Total employer contribution cannot exceed 15% of total eligible compensation
Testing Some testing still required Safe Harbor eliminates ADP/ACP testing
Administration Cost Base – plus – participant fee (usually lowered cost than straight 401(k))
Vesting Schedule None. All contributions are 100% vested
Third-Party Administrator Required Yes. Recordkeeper is also recommended (Armada Plan Direct offers recordkeeping)
Document Required Yes. Usually a prototype plan document. The document allows the plan sponsor to decide the type of contribution, outline which employees are eligible, allow loans and hardship withdrawals, allow rollovers, and/or place limits on employee deferrals.
Notification Period 30 days prior to plan start

If you would like to download information about Armada Plus Safe Harbor 401(k) or have additional information mailed to you, click here.
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