Annual Filing: Small business 401(k) vs. Safe Harbor 401(k) Flashcards
- Non-Discrimination Testing
Small business 401(k)–non-discrimination testing required
Safe harbor 401(k)–no non discrimination testing required
Impact on Filing:
For a traditional 401(k), the advisory firm and TPA will need to conduct and report the results of these tests as part of the annual filing process (via Form 5500).
For a Safe Harbor 401(k), the filing process is simplified since no testing is needed.
- Contribution Requirements
Small business 401(k)–employer contributions are optional
Safe harbor 401(k)–mandatory employer contributions
Impact on Filing:
For both plan types, the employer contributions are reported on Form 5500, but Safe Harbor contributions are mandatory and set, while traditional 401(k) contributions are more flexible.
- Participant Notices and Communications
Small Business 401(k) (Traditional 401(k)):
Required Notices: Depending on the plan design, a traditional 401(k) may require notices to be sent to employees, such as:
Summary Plan Description (SPD): Outlining the key features of the 401(k) plan.
Qualified Default Investment Alternative (QDIA) Notice: If the plan has default investment options.
These notices are required at plan inception, and participants must be notified of changes or annual updates.
Safe Harbor 401(k):
Additional Safe Harbor Notices: In addition to the usual notices required for a traditional 401(k), a Safe Harbor 401(k) plan requires the employer to send a Safe Harbor notice to employees at least 30 days before the beginning of each plan year. This notice informs employees about the employer’s contribution formula, eligibility, and vesting schedule.
The Safe Harbor notice ensures that the employer’s contributions meet the requirements to exempt the plan from non-discrimination testing.
- Compliance and Correction
Small business 401(k)–if any tests fail, then plan may need to refund excess contributions or reallocate contributions (make additional employer contributions); must be done before the filing of Form 5500 or the deadline for filing Form 5500
Safe Harbor 401(k)–no compliance testing failures and less fewer corrective actions
