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401(k) Safe Harbor Plans

In response to employer concerns over ADP testing, a new trend in 401(k) planning is the adoption of a “safe harbor” structure which allows the plan to avoid having to do ADP testing. Under the safe harbor method, plans can forego the ADP testing in exchange for making a 3% contribution for all participants, or a 4% graded matching contribution formula for participating employees. Another drawback to safe harbor contributions is that they are 100% vested. Nevertheless, for the right situation (such as plans which may otherwise be seriously limited by ADP testing, or plans which are top-heavy) a safe harbor plan can be very beneficial. Safe harbor plans are flexible because the employer can decide as late as 30 days before year end whether to apply the 3% safe harbor formula or perform ADP testing.

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last updated on Thursday, December 18, 2008 11:11 AM

 
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