What Is a Safe Harbor 401(K) Plan?

Many business owners offer comprehensive benefits packages to recruit talented workers. Often included in those benefits packages is a retirement plan of some kind.

If you’re new to running a company, you may not know which retirement plan would be best for your employees and your business. With that in mind, we want to take this opportunity to talk more about safe harbor 401(k) plans.

Learn more about safe harbor 401(k) plans by continuing with this article. By the end, you should know if this is the best retirement plan for your employees.

What Do I Need To Know About Safe Harbor 401(k) Plan?

Even if you aren’t familiar with safe harbor 401(k) plans, you’ve probably heard of 401(k) plans before. Those are the retirement plans that companies typically offer their employees.

A 401(k) plan works by taking deductions automatically from an employee’s paycheck. Those deductions then go into funds of the employee’s choosing.

Employees like 401(k) plans because they are tax-exempt savings. Some employers will even match the contributions made by their employees so the latter can save more money. The decision to match or not match is up to the employer.

Safe harbor 401(k) plans are different because they require employers to contribute to their employees’ retirement funds. The trade-off for employers is that they are no longer required to pay for non-discrimination testing if they opt for safe harbor 401(k) plans.

What Are the Benefits of a Safe Harbor 401(k) Plan?

Safe harbor 401(k) plans can appeal to both employers and employees. The benefits listed below explain how they manage to do that.

Safe Harbor 401(k) Plans Eliminate Testing Expenses

401(k) plans must be subjected to Actual Deferral Percentage and Actual Contribution Percentage tests before they are approved by the government. Those tests aren’t super expensive, but the costs connected to them can pile up over time.

If you would rather not deal with those tests as you grow your workforce, opting for safe harbor 401(k) plans is a good idea. You could save time and money by doing that.

Those savings can be especially helpful to small businesses.

Safe Harbor 401(k) Plans Help Employees Save More Money

Employees may also prefer safe harbor 401(k) plans because they are great for saving more money. Aside from their own contributions, employees know that their bosses are also chipping in.

Funds can grow quickly because it’s receiving multiple contributions regularly. You’re not guaranteed to get that from a standard 401(k) retirement plan.

Safe Harbor 401(k) Plans Can Be a Recruiting Tool

As we noted above, many talented workers may prioritize working for companies that provide safe harbor 401(k) plans because they want to grow their retirement funds as much as possible.

In a competitive market, presenting that safe harbor plan could be the thing that puts your job offer over the top.

When should I consider a safe harbor 401(k) plan? It makes sense for all companies, but small businesses may benefit from it even more. If you are just starting out as the head of your new business venture, don’t shy away from using those safe harbor 401(k) plans.