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February 15, 2009

Safe Harbor 401(k) Plan

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Definition

401(k) plans that make contributions in accordance with a safe-harbor formula, resulting in the plan not being subject to the ACP and ADP nondiscrimination testing, and the top heavy testing. Generally, 401(k) plans must perform ADP , ACP and top heavy testing in order to be in compliance with regulatory requirements. If the plan fails the tests, corrective action must be taken. An employer may avoid these tests by ensuring contributions satisfy one of the safe harbor formulas

Referring Cite

Treas. Reg. §1.401(m)-3, Revenue Procedure 2004-13 IRS Notice 98-52 and Notice 2000-3

Additional Helpful Information

  • Safe-harbor 401(k) plans are attractive for small businesses because they avoid the nondiscrimination tests, which can be costly.
  • Contributions to safe-harbor 401(k) plans are immediately 100% vested
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