A safe harbor 401(k) is a type of employer-sponsored retirement plan designed to offer benefits for both employees and employers alike.
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For employees, safe harbor plans ensure all eligible participants have the potential to receive an employer contribution. For employers, in exchange for meeting certain requirements, the plans can avoid the complications and potential expenses of most IRS-required annual nondiscrimination tests.
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Check out this video for an overview of safe harbor plans and their benefits:
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A safe harbor plan requires employers to make contributions to employee accounts following a specific formula. Employers have some flexibility in the contribution amount based on whether the plan is a traditional or qualified automatic contribution arrangement (QACA) safe harbor plan. Additionally, there are three types of contribution formulas available: basic match, enhanced match, and nonelective contribution.
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With Guideline, employers can expect to contribute a minimum of 3% of employee deferrals to be eligible for safe harbor status.
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Learn more about the differences between traditional and QACA plans and see a breakdown of the contribution formulas.
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Safe harbor contributions must be made for all employees who are eligible to participate in the 401(k) plan. However, employers can limit who is eligible by setting specific eligibility requirements for minimum age or length of service. At Guideline, we require that the eligibility requirements for all sources be the same.
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Nondiscrimination tests are required by the IRS after the end of each plan year to confirm 401(k) plans are accessible to all employees and that the benefits provided are fairly distributed.
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​The 3 main types of nondiscrimination tests are:

If plans do not pass the necessary tests for their plan, employers may be subject to applicable fees and costs for corrections and highly compensated employees (HCEs) may be limited in how much of their contributions can stay in the plan.
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Luckily, because safe harbor plans provide an equal opportunity for employees, these plans automatically satisfy most IRS nondiscrimination tests, including the actual deferral percentage (ADP) and, in some cases, the actual contribution percentage (ACP) and Top-Heavy tests if certain other conditions are met.
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October 1 is the final deadline for starting a new Safe Harbor 401(k). However, because employees must receive notifications 30 days before the plan starts, and it can take some time to establish the new plan, you’ll want to plan ahead.
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At Guideline, we recommend initiating safe harbor plan setup by August 15 of the plan year to allow ample time for meeting all deadlines.
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If you’d like to add a safe harbor matching provision to an existing 401(k), you can request a plan amendment, which will go into effect January 1 of any future year. Just as with new plans, employees will need to be notified 30 days before the start date, so you’ll want to request a plan amendment before the end of November to take effect by the new year.
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If you miss the deadline for adding a safe harbor provision, ​​you may be able to add it later in some circumstances. Find out how to add safe harbor mid-year here.
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