Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Eligibility > Safe Harbor > Flashcards

Safe Harbor Flashcards

1
Q

Safe Harbor - What is it?

A

A type of plan which is exempt from certain non-discrimination and top heavy testing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Why would employers want to adopt Safe Harbor?

A
  • Already making employer contributions near Safe Harbor levels
  • Required to make top heavy min contributions
  • Low employee turnover
  • Owners may be limited in how much they can contirbute (low participation)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Safe Harbor Advantages?

A

Owners and Highly Compensated Employees to maximize 401(k) contributions (at level permitted by the IRS)

Avoids certain nondescrimination testing

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Safe Harbor

When must the Safe Harbor notice be provided?

A

Provided to each eligible EE each year btwn 30 and 90 days before the next plan year

To newly eligible EE btwn 30 and 90 days prior to their plan entry date

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Why do I have testing problems when I have a Safe Harbor Plan?

I was told my plan was not subject to testing b/c it is Safe Harbor?

A

Safe Harbor = automatic pass on certain non-discrimination testing

ONLY when Safe Harbor contributions are the only employer contribution made.

Additional Discretionary contributions = testing requirements may be triggered

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Safe Harbor Basic Match

A

100% match of first 3% deferred, plus 50% of next 2% deferred

Maximum match is 4%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Safe Harbor Enhanced Match

A

100% match, up to 6% deferred.

Matching formula must be at least as generous as the basic formula

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Safe Harbor 3% Non-Elective (NEC)

A

Every participant receives a 3% contribution whether they are making elective deferrals or not

Contribution is not based on deferrals

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

QACA:Qualified Automatic Contribution Arrangement

A

Adds a matching component to an Automatic Contribution Arrangement

The match is dollar for dollar on the first 1% of compensation and $.50 per dollar on the next 5% of compensation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

When do Safe Harbor Contributions need to be deposited?

A

No later than the last date of the plan year, following the plan year for which they are due

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Suspension of Safe Harbor

A
  1. The employer is operating at an economic loss; and/or
  2. The safe harbor notice that is provided before the start of the plan year includes a statement that the employer may reduce or suspend contributions mid-year.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Suspension of Safe Harbor:

Employer Responsibilities?

A
  1. Provide 30 day notice to EEs
  2. Fund safe harbor contributions
  3. Give employees opportunity to change their deferral elections
  4. Complete ADP and ACP tests
  5. Meet top-heavy minimum requirements
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Safe Harbor: Testing

What tests are safe harbor plans excused from?

A

ADP= Average Deferral Percentage
ACP=Average Employer Percentage
Top Heavy test

*if they follow certain rules

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Safe Harbor: ADP

What is necessary to be excused from ADP testing?

A

Contribution provided to EEs must follow a certain formula:

Basic Formula
Enhanced Formula
Nonelective Formula
QACA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Safe Harbor: ACP

What is necessary to be excused from ACP Test?

A

Elective contributions over 6% aren’t matched

Rate of match doesn’t increase as deferrals increase

HCE’s can not get a greater rate of match than NHCE’s

Additional matches = NOT more than 4% of comp.

  • No allocation restrictions (ie. hours, number of days employed, etc.)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Safe Harbor Amendments

What can not be amended mid year?

A

Generally if it is making the plan more restrictive and reducing the employees eligibility = not allowed mid-year

17
Q

Safe Harbor

Vesting?

A

Safe Harbor employer contributions are always 100% vested

18
Q

Safe Harbor

Employer Responisibilities?

A

Funding the required contributions

Providing all participants an annual Safe Harbor notice

19
Q

When can Safe Harbor be added?

A

Must be first day of next plan year

Safe Harbor may NOT be added to an existing 401(k) plan during the plan year

20
Q

Top Heavy Testing

What is it?

A

Looks at the amt of plan assets (excluding Rollover’s) the Key EEs have

  • They have 60% of plan assets, the plan is considered Top Heavy
  • Then eligible Non-Key Employees are due a contribution
21
Q

Safe Harbor

Why are they exempt from certain testing?

A

The employer is committing to pay a specified Safe Harbor contribution to all eligible employees

Eligibility (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions