This side-by-side comparison of traditional and safe harbor 401(k)s can help you with this assessment. So, if an employee contributes 10%, the company matches 100% up to 4%, then 50% from 4% to 6%. Well send an authorization code to your email on file. Under the enhanced formula, the employer provides a match thatat any rate of 401 (k) salary deferralsprovides a match at least as great as the basic formula. Have more questions about how to roll out a Safe Harbor plan? Non-elective contributions, also known as profit-sharing, made to a safe harbor 401(k) plan are treated the same as if made to a conventional 401(k) plan. We'll send you a code to validate your phone number right now. Businesses fail nondiscrimination testing all the time. You want the ability to reduce or suspend safe harbor contributions mid-year without operating at an economic loss. ", Advertise in the BenefitsLink Newsletters, Submit a News Item, Press Release, Webcast or Conference, Subscribe (Free) toDaily or Weekly Newsletters, Help with Creating an Excel Formula to Show Safe Harbor Match, Please click here to report this link if it is broken. MATCH finds the largest value that is less than or equal to lookup_value. They can be subject to either a 3-year cliff or 6-year graded vesting schedule. 100% X 3% = 3%. The extra discretionary match can be subject to either a 3-year cliff or 6-year graded vesting schedule. But heres the catch: Safe harbor plans require mandatory employer contributions and immediate vesting for employees (that means all employer contributions given to employees belong to the employees the moment those contributions hit their account). For example, you could put a new employee on a five-year vesting schedule where the company increases the amount they are vested in by 20% every year. For example, if the range A1:A3 contains the values 5, 25, and 38, then the formula =MATCH(25,A1:A3,0) returns the number 2, because 25 is the second item in the range. Everybody wins! One of most effective ways an employer can persuade their employees to participate in a 401(k) plan is by matching a portion of their pre-tax or Roth 401(k) salary deferrals. The only requirement is for the plan to meet the safe harbor requirements for compensation paid through the effective date of the termination. At present I am using the Why? Due to the non-elective contribution in 2023, your safe harbor 401(k) plan is subject to top-heavy testing. One of the benefits of being a safe harbor 401(k) plan is that you are generally exempt from top-heavy testing. You might even face penalties and have to refund 401(k) contributions made by some of your highly compensated employees, and they would then owe taxes on the money they got back . Contrary to popular belief, company owners and highly compensated employees (HCEs) are not guaranteed the opportunity to contribute the maximum 401(k) contribution limit to their companys retirement plan, even if the 401(k) deferral contributions represent their own money. 3(21) vs. 3(38) Fiduciary: What's the Difference? Join our newsletter to stay up to date on features and releases. We have a great community of people providing Excel help here, but the hosting costs are enormous. You must amend your plan document before that date and allot enough time to provide employees with a 30-day notice. (Often $1 for $1 up to 3.5%). Please enter the email address you used when registering. Column C = B/A This will Express Deferrals as a percentage of compensation. Before you decide on your plan design, there are certain safe harbor provisions you need to understand. Looking up a value based on criteria, and returning a value. But when any change is in consideration, cost comes up pretty quickly. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). For example, C corporations generally have until March 15, 2022, to set up a new plan for 2021. This knowledge can help you design a 401(k) plan that best fits the needs of your company and employees. Unlike other Safe Harbor options, the match can be subject to a 2-year cliff vesting schedule. Then, because the match is 50% in Tier 2, we multiply by 50% (*50%). by Its dollar amount doesnt exceed 4% of compensation. Learn more about company match tax deductions and limits. However, the opportunity to elect a 3% or 4% nonelective contribution after the plan year has already begun, or even retroactively for the previous plan year will allow employers who can afford a safe harbor nonelective contribution to safeguard their Highly Compensated Employees ability to contribute the maximum 401(k) deferral limit of $19,500 for the years 2020 and 2021, while allocating a generous employer contribution to the NHCEs. The information below provides a more in-depth look at certain aspects to safe harbor 401(k) plans. For example, if the range A1:A3 contains the values 5, 25, and 38, then the formula =MATCH (25,A1:A3,0) returns the number 2, because 25 is the second item in the range. Within three months of plan year end, modifying or adding a match formula resulting in an increase of matching contributions or permitting discretionary matching contributions. MATCH supports approximate and exact matching, and wildcards (* ?) For formulas to show results, select them, press F2, and then press Enter. To calculate the match for Tier 1, we can start off like this: This works fine for deferrals of 4% or less, but we'll get FALSE for anything over 4%. They can help business owners maximize their annual contributions by automatically passing certain annual tests. If greater than 6%, just use 2%, since 2% is the maximum percent for Tier 2. Basic and enhanced matching contributions must be subject to 100% immediate vesting, while the QACA match can be subject to a 2-year cliff vesting schedule. Qualified Automatic Contribution Rates (QACA) must be a uniform percentage of eligible compensation, cannot exceed 15% of compensation, and must satisfy the following minimum percentages: 3%: First eligibility period ending on the last day of the year following the eligibility year.