If you’ve failed the IRS nondiscrimination test or want to ensure your highly-compensated employees can max out their annual 401(k) contributions, offering a Safe Harbor 401(k) plan might be the right choice for you.

But as you dive deeper into how Safe Harbor matching contribution and plans work (get a primer on Safe Harbor plans here), the issue of cost comes up rather quickly.

How Much Does a Safe Harbor Matching Contribution Cost?

To get a quick estimate on how much Safe Harbor contributions will cost you, use our handy Safe Harbor contribution calculator and find out the cost for:

  1. 3% non-elective contributions: essentially 3% of gross pay for every eligible employee, regardless of whether they’re putting in their own money into the 401(k) plan.
  2. 4% match contribution: roughly a 4% match for every employee that is contributing to the 401(k) plan.

It’s a little counter-intuitive, but after a certain point, the 3% non-elective contributions are actually cheaper than the 4% match contribution — this is all dependent on your overall participation and savings rate. Check out the calculator to see where your numbers fall.

Safe Harbor plans come with an added bonus come tax-time. The company can get tax deductions for matching contributions, this includes Safe Harbor contributions. Learn more about company match tax deductions and limits.

Safe Harbor Plan Alternative: Boosting Participation and Savings Rates

Because we’re big fans of behavioral economics and passionate about helping more Americans save for retirement, regardless of how much money you make, we can’t talk about Safe Harbor plans without bringing up the Safe Harbor alternative.

While offering a Safe Harbor 401(k) plan can give you the freedom to no longer worry about the IRS nondiscrimination tests (ADP, ACP, and Top Heavy tests). We do sit down with each of our clients to determine whether there is a way for the plan to pass these tests simply by working hard to boost participation and savings rates.

Generally speaking, we’re big fans of testing different methods of boosting employee engagement since it’s better for more employees and their long-term retirement savings success. If none of those employee engagement strategies are a good fit, then we explore the option of offering a Safe Harbor plan.

Have more questions about how to roll out a Safe Harbor plan? Chat with one of our retirement plan experts to learn:

  • Safe Harbor rollout timing that follows IRS requirements
  • Which Safe Harbor notices need to be send to employees, and when
  • How to make Safe Harbor contributions easier through payroll integration