Safe Harbor 401(k) Profit Sharing Plans

A 401(k) profit sharing plan may also have a safe harbor feature. This plan provision requires the employer to contribute a minimum of three percent of compensation to all employees or to provide a 100 percent match of the first three percent of compensation plus 50 percent of the next two percent of compensation for employees who defer. Both types of safe harbor contributions are immediately 100 percent vested. When a safe harbor contribution is made and appropriate notice is provided to eligible participants, the discrimination testing for salary deferrals is deemed to pass, effectively allowing the highly paid employees to defer up to the individual salary reduction maximum.