The IRS nondiscrimination tests (the ADP and ACP) compare the contributions or savings rates of one group of employees to the other. The IRS runs the test to determine whether employees across the company, regardless of how much they make, are saving at roughly equal rates or total dollar amounts. What the IRS doesn't want to see are highly compensated employees (HCEs) 401(k) contributions making up more than 70% of the total plan assets.
- 125% of the ACP for the group of NHCEs, or the lesser of:
- 200% of the ACP for the group of NHCEs, or
- the ACP for the NHCEs plus 2%.
- An officer making over $170,000 (2015 and 2016)
- A 5% owner of the business (a 5% owner is someone who owns more than 5% of the business)
- An employee owning more than 1% of the business and making over $150,000 for the plan year. Note that this may include employees who have unexercised, vested options - so companies that use option plans as part of their compensation packages should take care.
As you can see, offering a safe harbor plan is really expensive! Before you take on the cost, see if an alternative plan design will work instead. ForUsAll’s expertise and technology help clients pass IRS nondiscrimination tests without safe harbor by boosting participation and savings rates. On average we help clients realize 89% participation and a 8% savings rate across our book of business. Talk to us today about your safe harbor plan alternative, and see if you can save thousands of dollars each year!
Disclaimer: This calculator serves to estimate the employer cost of implementing a safe harbor plan, but is no guarantee of exact price or expenditure. It calculates employer cost for non-elective plans assuming 100% employee eligibility and a flat 3% employer contribution--the minimum non-elective contribution percentage required to achieve safe harbor status. Cost estimates for matching plans similarly reflect the minimum employer contribution necessary to achieve safe harbor status, calculated assuming a 100% employer match on the first 3% an employee defers, plus 50% of the next 2% an employee defers. The match calculation also assumes that 100% of participating employees will defer at least 3% to take advantage of the match.
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