Guest Theresa Posted June 8, 1999 Posted June 8, 1999 Can someone tell me the advantages of a safe harbor plan or where I might find some useful information on these types of plans?
Larry M Posted June 9, 1999 Posted June 9, 1999 the advantage of a safe harbor plan is in the eye of the beholder. By promising, well in advance of the start of the plan year, to make a significant contribution on behalf of all those employees who defer a portion of their salaries, the plan sponsor avoids having to make some tests and avoids the problems involved with returning the deferrals of certain highly compensated employees in those cases where the hce's have contributed, on average, more than the law allows. On the other hand, the plan sponsor must make this decision months before it knows whether it will be able to afford this matching contribution. Further, it changes the match from one which can have a slow vesting schedule to one which is non-forfeitable. From the employees view, it may be good - the match is known in advance; the match is non-forfeitable. ..and it may be bad - some sponsors provide matching contributions in excess of those permitted by the safe harbor and some long term employees enjoy the additions to their accounts which come from the forfeitures of departing employees.
Guest Mike Kimball Posted June 9, 1999 Posted June 9, 1999 The safe harbor 401(k) can be useful in a professional firm (e.g. a law firm) where there are several HCE owner types and not a huge number of NHCEs. It may be worth it to the HCEs to contribute the 3% for NHCEs so they may be "guaranteed" their 10,000 deferral each year. May be a small price to pay since plan is probably top heavy anyway. Another use may be in a small family operation with several family members/owners (not necessarily earning 160,000), but only a few NHCEs. The 3% cost may be minimal when compared to the possible ADP failures from low deferrals of the NHCE group. So an HCE earning 100,000 (or less)could safely contribute 10,000 (10% of comp or more up to 415 limit) and not have to worry about ADP failures. These are two situations I've encountered where safe harbor will work very nicely. It's also nice that the 3% nonelective counts for top heavy in addition to the ADP safe harbor! Mike ------------------ [This message has been edited by Mike Kimball (edited 06-08-99).]
lkpittman Posted June 10, 1999 Posted June 10, 1999 Don't forget that the safe harbor 3% non-elective contribution can also be included in the general test/cross-testing. Works nicely for a plan that is already putting in 3% or more employer discretionary because plan is top-heavy and cross-testing. Only additonal "cost" for them is the 100% vesting of the 3% and guarantee of the contribution even is ee terminates prior to year end--works great for my smaller ers who haven't been able to get their deferrals up to $10,000 because of low ee deferrals! ------------------ LKP LKP
Guest pensiondoc Posted June 17, 1999 Posted June 17, 1999 I am looking for sample language for a safe harbor notice- emploer will be using the 3% non-elective option. Any help would be great.
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