A Safe Harbor 401(k) plan is a simple and popular alternative for businesses.
Unlike traditional 401(k) plans, Safe Harbor plans eliminate annual testing requirements and enable highly compensated employees to contribute the maximum amount to their 401(k) accounts without the risk that their contributions might need to be returned due to a testing failure.
Safe Harbor 401(k) plans do, however, come with their own set of requirements around contributions and vesting and when they may be established or modified.
Considering a Switch?
Plans that are not currently operating with a Safe Harbor plan design may wish to consider switching to a Safe Harbor plan design.
Plans wishing to become Safe Harbor plans for a future calendar year must notify their Account Manager by mid-November, and must have their plan amended and notification made to their plan participants prior to the beginning of the plan year in which the plan becomes safe harbor.
Confirm the Safe Harbor Plan Design Each Year
Every year, plan sponsors must decide whether to continue to use a Safe Harbor plan design. Plans currently designated as Safe Harbor plans must notify their Account Manager of their intent to maintain Safe Harbor status (or not) for a future calendar year by mid-November.
Two Flexible Plan Design Options
Plan sponsors can choose between a regular Safe Harbor plan or an Automatic Contribution Safe Harbor plan, the key features of which are summarized in the table below.
|Feature||Safe Harbor||Automatic Contribution Safe Harbor|
|Automatic Enrollment||N/A||Automatically enrolls new and/or current employees with a 3-10% contribution rate|
Basic Match – 100% match on the first 3% of compensation deferred, plus 50% match on deferrals between 3% and 5% of compensation
Enhanced Match – Must be at least as generous as the basic match formula
Choice #1 – 100% match on the first 1% of compensation deferred, plus 50% on the next 5% of compensation deferred
Choice #2 – 3% Employer Non-Elective Contribution5
|Vesting of Company Match||100% immediate||100% after no more than two years|
|Eligible for In-service Withdrawals||No, unless age 59 1/2 or older||No, unless age 59 1/2 or older|
|Eligible for Hardship Withdrawals||No||No|
Required Notices for Participants 30 Days Before Plan Year Begins
Participants must be notified when plan sponsors decide to continue using or switch to a Safe Harbor plan design. PNC can help you meet this requirement. Participants must receive a notice no later than 30 days prior to the beginning of the plan year in which a Safe Harbor plan design will apply.
If you need to modify your Safe Harbor plan, we encourage consulting your legal counsel.
If you have questions, please contact your plan’s Account Manager or PNC representative.