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Adding a Safe Harbor to your 401(k) plan

January 04, 2023

Adding a Safe Harbor 401(k) plan provides a minimum level of contributions to all employees, freeing owners and highly compensated employees to receive larger profit-sharing payments. A successful business owner knows that finding and retaining top talent is one of the keys to building team unity and increasing profits.  A mandatory 3% annual employer contribution makes the Safe Harbor feature very popular.

In December of 2019 the SECURE act, "Setting Every Community Up for Retirement Enhancement" became law. The act contains an assortment of changes designed to encourage retirement savings by making it easier for employers to offer retirement plans with simplified administrative requirements. One change is to the Safe Harbor requirements. The act allows a 401(k) plan add Safe Harbor benefits during the plan year, up to one month prior to the plan end, effective retroactively back to the first day of the plan year, without a "maybe" notice, and with the same 3% required employer contribution.

The act also allows Safe Harbor to be added AFTER the plan year is ended. And, it may be added as late as the last day of the following plan year. However in this case the employer contribution must be 4%.The SECURE act allows plan sponsors flexibility to add Safe Harbor in ways that were not previously allowed. Adding Safe Harbor to your plan is simple and makes sense for many small businesses . 

With the end of the year just around the corner, now is the time to start reviewing retirement plan options to identify optimal design, increase tax efficiency and build retirement account balances. At IIS Financial Services in Augusta and Portland , Maine,  we are prepared to assist you with your retirement plan questions. You can reach us by calling our office or emailing us at 207-761-4733 or