401k Safe Harbor Plan

Our 401(k) Advisory Services: Plan Design

What is a 401(k) Safe Harbor Plan?

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A Safe Harbor 401(k) plan is a type of 401(k) with an employer contribution or match that allows you to avoid most annual compliance tests. Since failing annual compliance tests can be costly and time-consuming, Safe Harbor contributions are a popular option in 401k plan design.

If a 401(k) includes a Safe Harbor provision, the employer makes annual contributions on behalf of employees and those contributions are vested immediately. It is often referred to as a “Safe Harbor Match” but in fact one of the options is not a match but a non-elective contribution. It is important to understand all 3 options before selecting one for your company.

The 3 Types of 401(k) Safe Harbor

A Safe Harbor Match is an employer contribution and can be set up in one of three ways; a Non-Elective, a Basic Match, or an Enhanced Match. Once a part of the plan document, a Safe Harbor contribution is a mandatory employer contribution. It is important to understand that all 3 employer contribution options have immediate and 100% vesting. That means that as soon as the employee receives the contribution from the employer it is their asset immediately. There are three types of mandatory employer contributions, two of which are technically matches:

  • Non-Elective: Eligible employees get an annual employer contribution of 3% of their salary. All employees receive this money whether or not they contribute to the plan.
  • Basic Match: The employer matches 100% of the first 3% of each employee’s contribution and 50% of the next 2%. Employees are required to contribute to their 401(k) in order to get the match. The maximum contribution the employer can make is 4%.


    • Employee contributes 3% of pay. Employer matches 3%.
    • Employee contributes 5% of pay. Employer contributes 4%

Note: Employers can choose to provide a more generous match of up to 6% of eligible compensation.

  • Enhanced Match: The employer matches 100% of the first 4% of each employee’s contribution. Like a Basic Match, employees must contribute money to the 401(k) in order to qualify for the match.