But if all non-HCEs deferred at the 6% level, the required 3.5% matching contribution would be higher than a 3% nonelective minimum contribution. For example, if all non-HCEs made deferrals at a 3% level, the required matching contribution would only be 2% of compensation versus the 3% minimum for nonelective contributions. And, in some circumstances, the cost of providing safe harbor matching contributions-100% match on non-HCE deferrals up to 1% of compensation, and 50% match on additional non-HCE deferrals up to 6% of compensation-can be lower than nonelective contributions. Matching Contributions. Matching contributions might help dissuade some employees from opting out of automatic deferrals. Here is a summary of issues relating to each type of safe harbor contribution: Factors to consider when deciding between the two types of safe harbor contributions include the effect on employee retirement benefits, cost to the employer, and administrative complexity. The safe harbor minimum employer contributions can be either nonelective contributions or matching contributions, but the plan document must state which will be used. How do we decide which type of employer contribution to make?ĪNSWER: The Code § 401(k)(13) safe harbor for qualified automatic contribution arrangements (QACAs) allows plans to satisfy the actual deferral percentage (ADP) test by requiring automatic deferrals at specified levels (unless participants opt out) and making safe harbor minimum employer contributions for non-highly compensated employees (non-HCEs). ![]() ![]() That safe harbor will also require our company to make nonelective or matching contributions. QUESTION: We are redesigning our 401(k) plan to use the Code § 401(k)(13) nondiscrimination safe harbor for plans that make automatic deferrals.
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