A safe harbor 401(k) is a type of employer-sponsored retirement plan that benefits employers and employees alike. Plans that follow a safe harbor formula must make employee contributions, but in exchange, they can avoid certain IRS-required nondiscrimination tests, used to ensure that the plan is fair for all employees.
There are two types of safe harbor plans to choose from: traditional and qualified automatic contribution arrangement (QACA), each of which have various formulas and benefits.
Safe harbor formulas
Basic match
Traditional: Your company matches 100% of elective deferrals (how much employees contribute personally), up to 3% of their compensation, plus a 50% match of the next 2% of their compensation.
QACA: Your company matches 100% of elective deferrals up to 1% of employees’ compensation, plus a 50% match on the next 5% of their compensation.
Employee’s elective deferral rate | Traditional safe harbor basic match formula | QACA safe harbor basic match formula |
0% | 0% | 0% |
1% | 1% | 1% |
2% | 2% | 1.5% |
3% | 3% | 2% |
4% | 3.5% | 2.5% |
5% | 4% | 3% |
6+% | 4% | 3.5% |
Enhanced match
The general rule is an enhanced match must be at least as good at each deferral level as the basic match and the total match cannot be based on a deferral that exceeds 6% of compensation.
The most common enhanced match for traditional safe harbor plans is 100% of elective deferrals up to 4% of employees’ compensation. The most common enhanced match for QACA safe harbor plans is a 100% match of elective deferrals up to 3.5% of their compensation.
Employee’s elective deferral | Safe harbor enhanced match formula, 100% up to 4% | QACA safe harbor enhanced match formula, 100% up to 3.5% |
0% | 0% | 0% |
1% | 1% | 1% |
2% | 2% | 2% |
3% | 3% | 3% |
4% | 4% | 3.5% |
5% | 4% | 3.5% |
6+% | 4% | 3.5% |
Non-elective contribution
The company contributes at least 3% of each employee’s compensation (not to exceed 25%), regardless of whether employees elect to defer into the plan. This means that even if an employee doesn’t personally contribute into the plan, you are still contributing the designated percentage each pay period. Please note that for traditional safe harbor plans, the minimum amount may be 4%, depending on the timing of the election.
Deadline for adding safe harbor to your plan
Safe harbor elections must be made no later than November 20 to be applicable for the next plan year, effective January 1. To add a safe harbor provision, please contact our Customer Success team.
If you miss the deadline to add a safe harbor plan design, you can elect traditional safe harbor status mid-year retroactively with a non-elective contribution. However, a QACA safe harbor cannot be added retroactively even with a nonelective contribution.
Once a safe harbor design is in effect, it must apply for the entire year.
Please note, traditional and QACA safe harbor plans also have additional requirements, such as notices for employees and vesting schedules. You can learn more about traditional and QACA safe harbor plans here.