In order to meet the Safe Harbor 401(k) requirements, participants must receive matching or nonelective contributions under certain allowable formulas.
Plan sponsors who wish to prioritize stability and avoid corrections may consider a Safe Harbor 401(k) design. This is particularly helpful for plans which otherwise might be expected to fail testing based on employee demographics or other factors. Many plan sponsors choose to operate Safe Harbor 401(k) plans to take advantage of the streamlined plan administration and reduced annual compliance testing burdens. Such a plan is commonly known as a “Safe Harbor 401(k)” plan.
#SAFE HARBOR CONTRIBUTION CODE#
However, if a plan meets specific criteria described in the Internal Revenue Code (IRC), it will be deemed to satisfy certain nondiscrimination tests, depending on the exact nature of the contributions provided. This process can be time consuming for plan sponsors and may be costly if there are testing failures to correct. These tests compare the average rate of employee deferrals (pre-tax and Roth) or matching contributions as a percentage of compensation for highly compensated employees to that of non-highly compensated employees.
For most plans, this means that the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests must be performed each year. Structured Finance & Capital Equipment ValuationĮach year, qualified retirement plans must be tested to demonstrate that they pass various compliance tests required by the Internal Revenue Service (IRS). Portfolio Company Performance Improvement
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