![]() ![]() Since safe harbor 401(k) plans are exempt from non-discrimination testing and top-heavy testing, Rixse says, "they're the easiest plan to administer and generally have the fewest administrative and legal headaches in the long run." How non-discrimination testing worksĮmployers that offer traditional 401(k) plans to their employees are obligated to perform annual non-discrimination tests, which are designed to ensure that HCEs do not receive an unfair amount of contributions relative to non-highly compensated employees (NHCEs). "For employers, a safe harbor 401(k) plan can ensure that all employees get treated equally when it comes to participating in the company's 401(k) plan and receiving employer matching contributions," says Chad Rixse, director of financial planning and wealth advisor at Forefront Wealth Partners. Further, companies with a smaller employee headcount that lose a single worker could potentially see a significant impact on contribution ratios. Small businesses, in particular, might want to use safe harbor 401(k) plans since they could face greater risk of failing non-discrimination testing. Note: Highly compensated employees, or HCEs, are individuals who either earned a certain amount from their employer in the previous year - for example, over $130,0 - or owned a stake of more than 5% in the business.
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