06/21/2010
Safe Harbor 401(k) Plan
Tax
Advantages
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Employee deferrals are pre-tax and Employer contributions are tax-deductible
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Employees pay no income taxes on contributions or earnings until the participant or their beneficiary receives them
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Tax-deferral maximizes the compounding value and increases the participant's ultimate retirement income
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Employers pay no income taxes on contributions made to the plan on behalf of the Employees
Safe
Harbor 401(k) Features
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Employees can elect to defer from 0 up to 100% of their pre-deferred income, up to a maximum of $16,500 ($5,500 catch-up contribution allowed if employee is 50 years old, or older)
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Payroll deductions make deferrals convenient and easy
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Employee pre-tax deferrals reduce their Federal, State* and Local* income taxes but are subject to Social Security (FICA) tax
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No salary deferral discrimination testing, Highly Compensated Employees (HCEs) are not subject to non-HCE deferral rates. HCEs are guaranteed salary deferrals of up to $16,500
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Mandatory Employer contributions of either:
(1) 3% non-elective contribution to all eligible participants or
(2) Basic Matching Contribution equal to 100% match of first 3% of compensation deferred plus 50% match of next 2% of compensation deferred, or
(3) Enhanced Matching Contribution example: 100% match of first 4% of compensation deferred -
Mandatory Employer Contributions are 100% vested
-
Employee deferrals are always 100% vested
Plan
Suitability
Safe Harbor 401(k) Plans are
advantageous to the Employer when the
Employer:
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Wants to eliminate discrimination testing
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Wants to give employees the opportunity to enhance their own retirement benefits
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Wants employees to make part of the their contributions
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Willing to commit to some employer contributions
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Wants to limit Employer contribution obligations
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Wants flexibility in making profit sharing contributions
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Has relatively young key employees
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Wants to attract and keep key employees
Sample Safe Harbor 401(k) Allocation (assuming 3% non-elective contribution with new comparability profit sharing contribution)
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Safe Harbor 401(k) Plan / New Comparability Plan with 3% Contribution 2009 Fiscal Year |
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|
Name |
Attained Age |
Income |
Deferral$ |
EE% |
$Safe Harbor 3% |
%Safe Harbor 3% |
Catchup |
NCPS $ |
NCPS % |
Total$ |
Total% |
415 Limit |
|
|
Officer /SH #1 |
48 |
$245,000.00 |
$16,500.00 |
6.73% |
$7,350.00 |
3.00% |
$ 0.00 |
$25,150.00 |
10.27% |
$49,000.00 |
20.00% |
$49,000.00 |
|
|
Officer/SH # 2 |
57 |
$245,000.00 |
$16,500.00 |
6.73% |
$7,350.00 |
3.00% |
$5,500.00 |
$25,150.00 |
10.27% |
$54,500.00 |
22.24% |
$49,000.00 |
|
|
Group A |
|
$490,000.00 |
$33,000.00 |
|
$14,700.00 |
|
$5,500.00 |
$50,300.00 |
|
$103,500.00 |
|
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|
|
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|
Manager |
49 |
$75,000.00 |
$0.00 |
0.00% |
$2,250.00 |
3.00% |
$ 0.00 |
$6,000.00 |
8.00% |
$8,250.00 |
11.00% |
$49,000.00 |
|
|
Group B |
|
$75,000.00 |
$0.00 |
|
$2,250.00 |
|
$ 0.00 |
$6,000.00 |
|
$8,250.00 |
|
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|
Staff # 1 |
43 |
$25,000.00 |
$0.00 |
0.00% |
$750.00 |
3.00% |
$ 0.00 |
$500.00 |
2.00% |
$1,250.00 |
5.00% |
$25,000.00 |
|
|
Staff # 2 |
33 |
$20,000.00 |
$0.00 |
0.00% |
$600.00 |
3.00% |
$ 0.00 |
$400.00 |
2.00% |
$1,000.00 |
5.00% |
$20,000.00 |
|
|
Staff # 3 |
28 |
$23,000.00 |
$0.00 |
0.00% |
$690.00 |
3.00% |
$ 0.00 |
$460.00 |
2.00% |
$1,150.00 |
5.00% |
$23,000.00 |
|
|
Staff # 4 |
39 |
$30,000.00 |
$0.00 |
0.00% |
$900.00 |
3.00% |
$ 0.00 |
$600.00 |
2.00% |
$1,500.00 |
5.00% |
$30,000.00 |
|
|
Staff # 5 |
39 |
$40,000.00 |
$0.00 |
0.00% |
$1,200.00 |
3.00% |
$ 0.00 |
$800.00 |
2.00% |
$2,000.00 |
5.00% |
$40,000.00 |
|
|
Staff # 6 |
48 |
$35,000.00 |
$0.00 |
0.00% |
$1,050.00 |
3.00% |
$ 0.00 |
$700.00 |
2.00% |
$1,750.00 |
5.00% |
$35,000.00 |
|
|
Group D |
|
$173,000.00 |
$0.00 |
|
$5,190.00 |
|
$ 0.00 |
$3,460.00 |
|
$8,650.00 |
|
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|
Total |
|
$738,000.00 |
$33,000.00 |
|
$22,140.00 |
|
$5,500.00 |
$59,760.00 |
|
$120,400.00 |
|
|
|
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|
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|
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|
|
|
|
|
|
Group A % |
|
65.16% |
100.00% |
|
66.40% |
|
100.00% |
84.17% |
|
85.96% |
|
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|
Group B % |
|
10.62% |
0.00% |
|
10.16% |
|
0.00% |
10.04% |
|
6.85% |
|
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|
Group D % |
|
24.22% |
0.00% |
|
23.44% |
|
0.00% |
5.79% |
|
7.18% |
|
|
|
|
Employer contributions = Safe Harbor 3% of $22,140.00 and Employer New Comparability Profit Sharing (NCPS) of $59,760.00. Total $81,900.00 of which 79.37% is allocated to key employees.
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