It’s Not Too Late to Become a Safe Harbor 401(k) Plan

401(k) plans that fail nondiscrimination testing at year-end must take corrective measures to stay in compliance, such as returning salary deferrals to highly compensated employees or making additional contributions for other employees.1 If your plan failed mock midyear testing this year or has previously failed year-end testing, you may want to consider a safe harbor plan design. 

With a safe harbor plan design, the plan is deemed to satisfy ADP/ACP tests provided the plan meets safe harbor requirements, which include a mandatory matching or nonelective employer contribution. The plan will also automatically meet the top-heavy requirements if the only employer contribution made is the required safe harbor contribution.                                                                                                                          

Adopting and implementing a safe harbor feature has become easier with changes made by the SECURE Act of 2019. Plan sponsors can now adopt a safe harbor feature midyear or retroactively for the prior plan year if a nonelective contribution is provided for all eligible employees.2


  • A 401(k) plan can be amended to add a safe harbor 
    feature for the current plan year up until the 30th 
    day before the end of the plan year if the employer 
    makes a 3 percent nonelective contribution.
  • A 401(k) plan can be amended to add a safe harbor feature for the current plan year up until the end of the following plan year if a 4 percent nonelective contribution is made.

If you’re considering whether a safe harbor 401(k) feature might be beneficial for your plan, consult with your financial advisor, recordkeeper, or third-party administrator about the benefits and considerations, and to obtain projections of potential costs.