![]() ![]() Safe Harbor Plans Can Avoid Top-Heavy Rules For example, an employee who had compensation in excess of $130,000 in 2021 is an HCE for 2022. The compensation limit is applied in the 12 months before the plan year being tested. Note: HCEs are more than 5% owners (including their spouses and lineal ascendents/descendants) and any employee who had gross compensation in excess of the dollar threshold ($130,0 and $135,0, indexed with cost-of-living adjustments). If that test fails, HCEs may get a refund of their deferrals. ![]() The ADP Test is performed annually to ensure that the Highly Compensated Employees (HCEs) are not disproportionately deferring at a greater rate than the Non-Highly Compensated Employees (NHCEs). ![]() The primary benefit of a safe harbor 401(k) plan is that the plan is deemed to satisfy the Average Deferral Percentage (ADP) Test. Safe Harbor Plans Do Not Need to Pass ADP/ACP What Are the Main Benefits of a Safe Harbor 401(K) Plan?ġ. If your plan is top-heavy (more than 60% of the assets in the plan are owned by key officers and owners), a safe harbor 401(k) may also be exempt from required top heavy minimum contributions.įree is relative, as the cost of a safe harbor 401(k) plan is the required employer contribution with 100% immediate vesting. A safe harbor 401(k) plan is a type of retirement plan that provides a “free pass” on the annual non-discrimination testing that measures average deferral rates among your employees and, in some cases, a “free pass” on additional discretionary matching contributions. ![]()
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