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TIMING IS EVERYTHING: Why This Might Be the BEST Time to Consider (or Revise) Your Company’s 401(k)

In today’s highly-competitive, low-unemployment business environment employers need to offer comprehensive benefits packages, to attract and retain valuable employees, and a Safe Harbor 401(k) Plan is often the magic ingredient.

If you find all the regulatory hurdles of a 401(k) Plan perplexing and frustrating (e.g. non-discrimination testing, fee disclosures, and 5500 filings,) don’t despair.

This is actually the perfect time to consider starting a retirement plan, and we can make the process relatively painless!

Traditional 401(k) Plans are subject to non-discrimination testing at the end of the year.  This is known as ADP/ACP and top-heavy testing, which ensures that the 401(k) Plan is benefiting everyone, not just business owners and a few key employees.  If a plan fails these tests, highly-compensated employees often get refunds at the end of the year resulting in frustration and additional taxes. 

In comes the “Safe Harbor” feature which allows 401(k) plans to automatically pass the annual tests. 

“Safe Harbor” 401(k) Plans are popular among small businesses because they allow business owners to maximize their tax-advantaged contributions to the plan while helping their employees save for retirement. 

The employer cost is a small “match” or non-elective contribution 

  • The match option requires employers to match the employee’s contributions up to 4% of eligible compensation. 

  • The non-elective option gives every employee 3% of their compensation regardless of their participation in the plan. 

Many employers fund these employee accounts at this modest level because it helps attract and retain top talent.  It also lets the employer maximize their personal pre-tax savings.  

So, does this make good business sense for you and your organization?  We recommend consulting your tax advisor since the answer often comes down to simple math. 

In 2019, 401(k) participants (including business owners) can contribute a total of $19,000 or up to $25,000 if above the age of 50. 

The combination of tax savings, employee satisfaction, and more retirement savings could be enough incentive to make Safe Harbor 401(k) Plans simply irresistible.

Important Dates for New Plans 

  • August 2019: Decide if a Safe Harbor 401(k) makes sense for the current year. 
  • September 1: Distribute 30-days notice to your employees. 
  • October 1: Start of the Plan with exemption granted for non-discrimination testing in 2019.

Important Info for Existing 401(k) Plans Looking to add Safe Harbor

  • If you already have a Focus HR, Inc. 401(k) Multiple Employer Plan, or have an existing 401(k) somewhere else, different rules may apply. 

  • Adding Safe Harbor requires a plan amendment at the end of the year along with a 30-day notice distributed no later than December 1.  

  • If you wish to add Safe Harbor for 2020, we ask that you let us know by November 1 so that we can prepare notices and amend your plan document in time. 

To speak with us about starting a retirement plan, or adding Safe Harbor to your existing plan, click here!

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