Download the 2024 Safe Harbor Guide

Download the 2024 Safe Harbor Guide

Understand new rules for 2024, benefits of Safe Harbor and strategies to minimize Safe Harbor costs.

5 min read

2024 Safe Harbor 401(k) Non-Elective Guide

David Ramirez, CFA
January 23, 2024
2024 Safe Harbor 401(k) Non-Elective Guide
Table of contents


As a small business owner, you understand the importance of a retirement plan that benefits you and serves your employees. Enter the non-elective Safe Harbor 401(k) plan, a retirement option with significant advantages for employers and employees.

Safe Harbor 401(k) plans require employers to contribute to eligible employees' 401(k)s. Business owners can choose between providing a Safe Harbor 401(k) Match or a non-elective employer contribution.

Despite the required employer contribution, Safe Harbor plans are popular because they are easy to administer, popular with employees, and allow highly paid employees (HCEs) to maximize their annual 401(k) contributions reliably. They can also be a powerful way for business owners to lower their personal taxes.

What is a Non-Elective Safe Harbor 401(k) Plan?

A Non-Elective Safe Harbor 401(k) automatically passes key IRS-mandated nondiscrimination tests, simplifying end-of-year compliance work. Employers must contribute at least 3% of pay to every eligible employee. This contribution is mandatory, regardless of whether the employee contributes to the plan. However, an employer can choose an Enhanced Non-Elective Safe Harbor plan where they contribute more than 3%.

A Traditional Safe Harbor 401(k) must provide a 4% match. However, this is only for employees who are saving into the plan.    

Both types of Safe Harbor plans enable employers to pass annual nondiscrimination tests automatically. This ensures HCEs and key employees can contribute the maximum amount each year without any refunds or additional employer contributions.

A Non-Elective has several advantages compared to Safe Harbor Match:

  • less stringent notice requirements,
  • greater financial predictability; and
  • is highly compatible with profit-sharing plans, which, in 2024, allow owners to shelter up to $69,000 or $76,500 with 50+ catch-up contributions.  

The non-elective contribution option is attractive. It allows employers to contribute a percentage of each eligible employee's compensation to their retirement account. This is regardless of whether the employee contributes their own money.

How Does a Non-Elective Safe Harbor 401(k) Plan Work?

Once an employer has chosen the amount of their non-elective contribution, they must calculate plan-eligible compensation. This compensation is usually  W-2 wages (i.e., W-2, Box 1), however, employers can exclude pay like overtime or bonuses. If you exclude income, you must comply with specific IRS rules, which can get complicated quickly.

Employers have the option of making this contribution on an ongoing basis or at the end of the year. The timing of the employer contributions must be specified in the plan document. If you choose year-end funding, you must fund this contribution no later than when you file your taxes. Filing a tax extension will also extend the deadline for funding the non-elective contribution.

The Advantages of a Non-Elective Safe Harbor 401(k) Plan

The non-elective Safe Harbor 401(k) plan is an excellent option for small businesses for several reasons.

Advantage #1: Simplified administration

First, the plan simplifies administrative tasks by removing the need for certain annual compliance tests. This is particularly beneficial for small businesses, which often operate with limited resources.  Moreover, non-elective Safe Harbor plans may have easier notice requirements than other Safe Harbor options.

Advantage #2: Maximize Savings for HCEs

Safe Harbor plans allow highly compensated employees (HCEs) and Key Employees to maximize their 401(k) savings without the risk of refunds or additional required contributions due to failed compliance tests. This can be a significant advantage for small business owners looking to maximize their personal retirement savings - especially with profit-sharing plans.

Advantage #3: Everyone can benefit

Third, the non-elective contributions ensure that all employees receive some level of retirement contributions, regardless of their savings levels. This can help to increase overall employee satisfaction and retention.

Advantage #4: Save Business Owner Taxes

Non-elective plans can be combined with profit-sharing plans to help business owners save up to $69,000 in 2024 (or $76,500 with 50+ catch-up contributions).  These plans allow owners to target additional contributions to highly-paid workers, older workers, or more tenured employees.  

Safe Harbor 401(k) Plans for Small Businesses

Every small business owner understands the importance of a robust retirement plan. It secures a comfortable future for employees. Additionally, it is an essential tool for attracting and retaining top talent. One such potent tool in the retirement plan arsenal is the Safe Harbor 401(k) plan which is now used by 35% of small businesses surveyed in 2023.

Safe Harbor 401(k) plans are increasingly popular among small businesses. In fact, a 2022 study found that nearly half of Safe Harbor retirement plans chose a non-elective plan design. These plans automatically pass certain annual tests that conventional 401(k) plans are subject to by adhering to two key requirements - mandatory contributions and participant notices. The outcome is a win-win situation where business owners, especially highly compensated employees, can maximize their annual contributions without fearing additional employer contributions due to failed testing. This assurance, coupled with the flexibility of contribution options, has made the Safe Harbor 401(k) plan the preferred choice for many small businesses​.

What Are The Safe Harbor Non-elective Options

Within the Safe Harbor 401(k) plan, there are several mandatory contribution options, with two primary categories being the Traditional Safe Harbor, the Enhanced Safe Harbor, and the Qualified Automatic Contribution Arrangement (QACA) Safe Harbor.  QACA allows business owners to add a Safe Harbor 401(k) with 2-year vesting.  This is great for employers with high employee turnover.  

  Minimum Employer Contribution Who receives contributions Vesting Automatic enrollment Profit sharing friendly
Traditional Safe Harbor Non-elective 3% of eligible pay Every eligible employee Immediate Optional Yes
QACA Non-elective 3% of pay Every eligible employee Up to 2 yrs. Required Yes
Enhanced Safe Harbor Non-elective 3% of pay or more Every eligible employee Immediate Optional Yes

Why Choose Non-Elective Safe Harbor?

The non-elective Safe Harbor 401(k) plan has several advantages that make it attractive to small businesses. Here are a few reasons why you should consider it for your company:

  1. Equal Opportunities for All Employees: With non-elective contributions, all employees receive employer contributions, regardless of their savings ability. This ensures that every employee benefits from the plan, promoting a culture of inclusivity - across employees of all income levels and financial situtations.
  2. Simplicity and Predictability: The non-elective contribution model is straightforward. Employers contribute a fixed percentage of each employee's compensation. This makes it easier to predict and budget for retirement plan expenses, simplifying financial planning. Because a Safe Harbor Match is based on how much employees save, it can be hard to estimate at the beginning of the year - especially for rapidly growing companies or companies with high employee turnover.
  3. Enhanced Employee Attraction and Retention: Offering a retirement plan where all employees receive contributions can be a powerful tool for attracting and retaining talent. It shows that you value your employees' future, which can boost morale and loyalty.
  4. You can suspend non-elective Safe Harbor plans midyear: If a company wants to reduce or suspend its safe harbor non-elective contributions during a year, it can do so under certain conditions. First, the company must face financial losses or have previously warned employees about possible changes. Second, the company must give employees at least 30 days' notice before the changes take effect. Lastly, employees should have a chance to adjust their own contributions before the company's changes are implemented.
  5. Easier IRS notice requirements: Both Safe Harbor Non-Elective and Safe Harbor Match plans need to give employees notice each year. But, if a Non-Elective plan meets certain rules (like not providing a match as well), it doesn't have to give this notice. A Safe Harbor Match plan, on the other hand, must provide the annual notice each year or it risks falling out of compliance with Safe Harbor notice requirements.
  6. Profit sharing plans: In a non-elective Safe Harbor 401(k) plan, business owners and highly compensated employees can contribute the maximum annual deferral limit without worrying about failing the annual IRS nondiscrimination tests.

While the non-elective Safe Harbor 401(k) plan offers many benefits, it's crucial to assess your specific business needs and consult a qualified professional.

Download the 2024 Safe Harbor Guide
Understand new rules for 2024, benefits of Safe Harbor and strategies to minimize Safe Harbor costs.
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About Author -
David Ramirez, CFA

David Ramirez, CFA, is a recognized 401(k) expert with over 20 years of experience in 401(k), ERISA, cash balance plans, and ESOPs. A UC Berkeley graduate, he played a pivotal role at Financial Engines, a 401(k) advisory firm founded by Nobel Laureate William Sharpe, Ph.D., where he was a portfolio manager who helped manage over $50B in 401(k) assets.  His clients included some of the largest Fortune 500 companies and state governments.

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1 Schwab 2022 401(k) Participant Study - Gen Z/Millenial Focus, October 2022.
2 As of 12/31/2022. Employees include both current employees and terminated participants with a balance.
3 "Morgan Stanley At Work: The Value of a Financial Advisor" Morgan Stanley, March 2022.
4 Sarah Britton was a client when she provided this testimonial through an independent third party review website. She received no compensation for her remarks. There are no known conflicts of interest in the provision of her comments related to the services provided.