A plan with a safe harbor match and no additional employer contributions will pass ADP, ACP and top heavy tests. Well send an authorization code to your email on file. However, if you select certain plan design features, your plan may not be exempt. Our videos are quick, clean, and to the point, so you can learn Excel in less time, and easily review key topics when needed. There are three types of contributions you can make to satisfy the safe harbor provisions, and your 401(k) plan document must reflect the option youve selected. Sometimes, nonelective contributions like profit sharing which dont require employees to do anything to receive a contribution are the better alternative. Please try again later. A non-elective (a/k/a profit-sharing) contribution (including forfeiture reallocations) is made during the year. The match_type argument specifies how Excel matches lookup_value with values in lookup_array. Eligibility requirements for safe harbor contributions are longer than for elective deferrals. WebSafe Harbor plans use two types of matching formulas: Basic Matching: The employer matches 100% of each employees 401(k) contributions, up to 3% of their yearly compensation, plus a 50% match of the next 2% of their contributions. Meet safe harbor 401(k) contribution requirements with the least possible expense possible when low plan participation by employees makes a safe harbor matching contribution less expensive than the 3% safe harbor nonelective contribution. I currently have this formula. There are other safe harbor match formulas, such as the matching contribution for a QACA (qualified automatic enrollment arrangement) which is 100% of an employee's contribution up to 1% of compensation and a 50% matching contribution for the employee's contributions above 1% of compensation and up to 6% of compensation. basic safe harbor match formula excel | Excel Avon Tag: basic safe harbor match formula excel How to use MATCH Formula in Excel Akbar Mansuri June 6, 2022 You can elect the safe harbor nonelective contribution at any time during the year, as long as the change is made 30 days before the end of the plan year (December 1 for calendar year plans) and the contribution is retroactive for the entire year. If youre willing to increase the nonelective contribution to 4%, the deadline is extended to the last day of the next plan year (December 31 for calendar year plans). Lets run through the benefits and drawbacks of a safe harbor 401(k) really quickly. You might even face penalties and have to refund 401(k) contributions made by some of your highly compensated employees, and they would then owe taxes on the money they got back . All rights reserved. No. The plan must generally be in place before the beginning of the year so that timely written notice of safe harbor match contribution may be distributed to all eligible employees between 30 and 90 days before the beginning of the plan year. A question mark matches any single character; an asterisk matches any sequence of characters. For example, you could put a new employee on a five-year vesting schedule where the company increases the amount they are vested in by 20% every year. WebSample 1 401 (k) Safe Harbor Matching Employer Contributions Formula. Under the enhanced formula, the employer provides a match thatat any rate of 401 (k) salary deferralsprovides a match at least as great as the basic formula. Reducing the number or otherwise narrowing the group of employees eligible to receive safe harbor contributions if the employees have already met the existing eligibility conditions. Click the link in the email to finish setting up your dashboard. If you want to be more generous and offer a matching safe harbor plan with a 5% match to your employees, knock yourself out! Sample The ADP test must be performed taking into account elective deferrals and compensation paid from January 1, 2023 through December 31, 2023. Small-business owners and employees love the safe harbor option because it makes it easier to meet the rules set by the government and workers get some kind of contribution to their retirement plans. Ive actually been gorging on your articles and videos every night this week. Heres everything you need to know about Safe Harbor (get a primer on Safe Harbor 401(k) plans here), matching contributions, how plans work, and the associated costs. Since Tier 1 is capped at 4%, and we know the deferral is at least 4%, we simply use 4%. Non-elective contributions in addition to safe harbor contributions may also be subject to vesting. If that employee leaves after three years, they can only take 60% of their employers contributions with them. In other words, you, as the employer, control whether your safe harbor 401(k) plan is always exempt from top-heavy testing. You can help keep this site running by allowing ads on MrExcel.com. Additional contributions to the safe harbor may trigger discrimination testing. A 401(k) plan cant require participants to be employed on the last day of a year or work a minimum number of hours to receive a safe harbor match for the year. lookup_arrayRequired. WebThe minimum required NEC is 3% of compensation, while the minimum required match formula yields a match of 4% of pay for any employee who defers 5% or more of pay from his or her paycheck. Plan sponsor can choose age and hours of service, not to exceed age 21 and 1,000 hours, Plan sponsors must have the same requirements for both employer and employee contributions, $19,500, plus $6,500 catch-up contribution for people age 50 and older, Flexible, cant exceed six-year graded vesting schedule, Actual contribution percentage (ACP) test, Required if plan offers match or after-tax contributions, Limited changes are permitted; participants must be notified 30-90 days before the effective date and be given 30 days to change their deferral election (see IRS Notice 2016-16). Please check your email for password reset instructions. Certain annual testing, including the ACP test, must be satisfied for the additional match. A 100% match on an eligible employees Yet, despite their indisputable benefit to employees, matching contributions are not the best fit for every 401(k) plan. If your business has already failed those tests, a safe harbor 401(k) can help make your plan compliant in a snap. An automatic enrollment safe harbor plan is called a Qualified Automatic Contribution Arrangement (QACA). This change is permitted if made prior to three months before plan year end and the change is retroactive to the beginning of the plan year. 8% or .08, =((MIN(D2,3)*C2)+IF(D2>3,MIN(D2-3,2)*0.5*C2))/100, =(MIN(D2,3%)*C2)+IF(D2>3%,MIN(D2-3%,2%)*0.5*C2), =((MIN(D2,1)*C2)+IF(D2>1,MIN(D2-1,5)*0.5*C2))/100, =(MIN(D2,1%)*C2)+IF(D2>1%,MIN(D2-1%,5%)*0.5*C2). An employee who defers 5% of compensation will receive a 4% match. ; Enhanced match Formula must be at least as generous as the basic match at each tier of the match formula and cant be based on more than 6% of compensation. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). If MATCH is unsuccessful in finding a match, it returns the #N/A error value. This side-by-side comparison of traditional and safe harbor 401(k)s can help you with this assessment. Group annuity contracts and recordkeeping agreements are issued by John Hancock Life Insurance Company (U.S.A.), Boston, MA (not licensed in NY), and John Hancock Life Insurance Company of New York, Valhalla, NY. Learn More. JavaScript is disabled. Everybody wins! Due to the non-elective contribution in 2023, your safe harbor 401(k) plan is subject to top-heavy testing. I'm going through it now in an attempt to reverse engineer what you have done. We have a great community of people providing Excel help here, but the hosting costs are enormous. The subsequent scenarios generally satisfy Safe harbor requirements: Basic match. How much an employee decides to contribute to a 401(k) plan is often influenced by how much the employer is contributing. For Tier 2, we can start off in the same way: In this case, though, if the deferral is4% or less, we return 0, since that's already been covered by Tier 1. If you choose a safe harbor plan with basic or enhanced matching, non-HCEs will be encouraged to put money into their 401(k)s so that they can get the employer match. Safe harbor 401(k)s are retirement plans designed to protect companies (small businesses, in particular) from getting in trouble with the IRS. We'll send you a code to validate your phone number right now. (Often $1 for $1 up to 3.5%). No supplemental notice, ADP testing or top-heavy testing is required. Then, because the match is 50% in Tier 2, we multiply by 50% (*50%). MATCH finds the first value that is exactly equal to lookup_value. get a primer on Safe Harbor 401(k) plans here, Learn more about company match tax deductions and limits, Chat with one of our retirement plan experts. Thank you so very much for making the site!. Securities are offered through John Hancock Distributors LLC, member FINRA, SIPC. There are a couple of downsides to a safe harbor plan we have to talk about. That way, you can make the best decision for your business. For example, businesses have until October 1, 2021, to set up a new plan for 2021. This is especially true when it comes to vestingwhich is a term used to talk about how much of someones employer contributions belong to them if they leave their job. You are responsible for paying the 3% non-elective safe harbor contribution for compensation paid from January 1, 2023 through May 14, 2023. Our match is 100% match on first 3% of deferred salary; then 50% match on next 2% of deferred salary. Basic safe harbor match. Basic match under a Traditional Safe Harbor Plan: 100% match on the first 3% of compensation deferred plus 50% match on the next 2% of compensation deferred. The safe harbor 401(k) was created as part of the Small Business Job Protection Act of 1996. All rights reserved. Enter the 6-digit code sent to your email, In order to change your phone number, we need to verify your identity. Most people tell you to take the 401(k) company match no matter what. Any employee making elective deferrals in 2023 is eligible for this match. Please refer to your Plan's fee disclosure for more details. 2023 ForUsAll, Inc. All rights reserved. John Hancock Trust Company LLC provides trust and custodial services to such plans. This article provides generalguidelines about investingtopics. For a better experience, please enable JavaScript in your browser before proceeding. match_typeOptional. Authored The content of this website is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. Because if their highly compensated employees and key employees invest too heavily into the companys retirement plan, theres a chance the plan might not pass those nondiscrimination tests, which could lead to some costly consequences!