If you missed the November deadline to add safe harbor for next year or you decide you’d like to move to safe harbor mid-year, it may not be too late. Whether your plan is eligible to add a traditional safe Harbor nonelective provision depends on your current plan design.
When you cannot add a safe harbor provision
If your plan is currently offering a discretionary employer match, Guideline cannot accommodate adding a safe harbor provision mid-year.
You can, however, request to add safe harbor for the following plan year by contacting our Sponsor Support team before November 20 to be effective for the next plan year, effective January 1.
Additionally, a qualified automatic contribution arrangement (QACA) safe harbor can never be added after the 1st of the year due to the automatic enrollment requirements, even if the plan already has an EACA automatic enrollment provision.
When you can add traditional safe harbor
If your current plan does not include a discretionary employer match, you can add a traditional safe harbor provision with a nonelective contribution for the current or prior year. To be eligible, you must agree to adding a nonelective contribution of at least 3% before December 31, or at least 4% thereafter (you can retroactively add at least a 4% nonelective contribution for the prior year to make the plan safe harbor). Additionally, the contributions must be 100% immediately vested.
A nonelective contribution means you make employer contributions to every employee, even if they are not personally contributing to their 401(k) account.
Once adopted, the nonelective contribution provision will go into effect immediately on a per-pay-period basis. After the end of the year once compensation is collected, if applicable, Guideline will process a true-up to ensure all employees received the full employer contribution for the entire plan year based on their gross compensation.
How a true-up works when adding a traditional safe harbor nonelective contribution
Music Mogul, LLC has 2 employees, Dave Matthrews and Zac Brown, who are paid monthly. Music Mogul, LLC added a 3% nonelective traditional safe harbor contribution on September 1.
Dave Matthrews makes $3,000 per pay period, and his gross compensation for the year is $36,000. He is owed a total employer contribution for the year of $1,080. Music Mogul, LLC has already given Dave $360 dollars toward his employer contribution, through payrolls made after the plan added a 3% nonelective safe harbor contribution. Therefore, Dave is owed an additional $720 via a true-up.
Zac Brown makes $5,000 per pay period, and his gross compensation for the year is $60,000. He is owed a total employer contribution for the year of $1,800. Music Mogul, LLC has already given Zac $600 dollars toward his employer contribution. Therefore, Zac is owed an additional $1,200 via a true-up.
Music Mogul, LLC will have a true-up of $1,920 for the 2 employees, which Guideline calculates and pulls the following year, after the employees’ compensation for that year is confirmed.
|
|
| Dave Matthrews ($3,000/month) | Zac Brown ($5,000/month) |
Pay Date | Employee Contribution (0%) | Employer Contribution (3%) | Employee Contribution (12%) | Employer Contribution (3%) |
9/30 | $0 | $90 | $600 | $150 |
10/31 | $0 | $90 | $600 | $150 |
11/30 | $0 | $90 | $600 | $150 |
12/31 | $0 | $90 | $600 | $150 |
True-up | $0 | $720 | $0 | $1,200 |
Total | $0 | $1,080 | $2,400 | $1,800 |
How to add traditional safe harbor to your plan
If you are eligible to add a traditional safe harbor nonelective provision mid-year, please contact Sponsor Support and provide your Guideline account ID, along with the percentage you wish to provide for your traditional safe harbor nonelective contribution.
If you already have a safe harbor plan, learn when and how you can make changes to your plan mid-year here.