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Retirement plan rules require that Safe Harbor contributions be allocated to all eligible Non-Highly Compensated Employees. However, depending upon how the plan is designed, Highly Compensated Employees may be excluded from receiving Safe Harbor contributions.
Safe Harbor contributions are mandatory employer contributions, which can be either Match or Non-Elective. A Safe Harbor plan is specifically designed to provide eligible participants with some type of employer contribution that is 100% vested either immediately or at the most within 2 years of service.
Most qualified retirement plans, like a 401(k), incorporate provisions for employer contributions. Generally, these employer contributions are discretionary and are either allocated to your account as a Match or a Non-Elective (Profit Sharing).
Matching contributions are often allocated concurrently with your Pre-Tax and/or Roth deferrals each pay period. However, your employer may have opted for other less frequent remittances, such as quarterly, semi-annually, or annually. Non-Elective contributions; however, tend to be remitted annually and after the plan year has ended.
The key difference between an employer Match and an employer Non-Elective contribution is that only the Match is allocated to those eligible participants who have deferred from their compensation into the plan. Non-Elective contributions are not predicated on you deferring. You need not "elect" to defer to share in a Non-Elective contribution but you must meet the eligibility requirements and continuing requirements to share in the Non-Elective contribution.
ERISA requires that only Non-Highly Compensated Employees receive the employer Safe Harbor contributions. Your retirement plan may or may not allow for Highly Compensated Employees to receive the Safe Harbor contribution. Most often, plans choose to exclude Highly-Compensated Employees from receiving Safe Harbor contributions in order to maximize flexibility in a cross-tested profit sharing allocation.
The following is the standard Safe Harbor Match Formula.The employer must contribute:
The rate of matching contributions for Highly Compensated Employees must not exceed the rates for Non-Highly Compensated Employees.
For Safe Harbor Non-Elective plans, the employer must make a non-elective contribution on behalf of all Non-Highly Compensated Employees eligible to participate in the plan that is equal to at least 3% of the employee's compensation. This must be contributed regardless of whether or not the employee has made elective deferrals (Pre-Tax and/or Roth deferrals) from compensation.