Safe Harbor 401k

Should I set up a Safe Harbor 401k plan for my employees? Is this a better option than other 401k types and why? – Larry E. Davis, Newark, NJ, runs a ready- to- eat foods business.

A Safe Harbor 401k plan was introduced to the American public as a retirement savings plan that was simpler than the regular plans available to employees. The safe harbor plan lets employers meet the non discrimination requirements for retirement benefit plans in a much easier way. A highly compensated employee gets the same treatment as one who is lower on the salary scale with this kind of 401k plan. This is definitely in the interests of your employees because they need not fear any unfair distribution of employer contributions.

With a Safe Harbor 401k all your employer contributions are vested with immediate effect. You are required to keep the employees informed of their rights as regard this plan at all times. In short, a 401k plan is a more equitable and highly transparent retirement savings plan. This is one main reason why employees prefer this kind of plan.

If you set up this kind of plan for your business, you can match every eligible employee’s contribution fully up to a maximum of 3% of his total compensation. Beyond this max limit, you can match his contribution 50 cents to every dollar up to 5% of his total compensation. Otherwise you can opt for a 3% non elective contribution to all eligible employees. Keeping track of the employees contributions and your matching inputs can become a very complex task unless you are using a DIY package. Choose a fully featured 401k software package like that has the advantage of a budget price to keep your overall costs well within your means.

About Elliot Earl, Director, Pension Trade Association
Director, Pension Trade Association Founded in 1982, the Pension Trade Association [California Domestic Nonprofit Corporation #C1629080] is dedicated to helping workers save for their retirement through expanded coverage of 401k -type defined contribution pension plans.

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