Safe harbor 401(k) plans have become a very popular plan design over the last decade. By providing an opportunity for company principals to maximize deferrals and also providing a minimum level of savings for all participants, the Safe Harbor design is attractive to both employers and employees.
If you have discussed the idea of a Safe Harbor 401(k) plan during recent annual planning with your clients, you need to be aware of an important date. October 1st is the latest date that a client can adopt Safe Harbor provisions to be effective for the 2016 calendar year. This applies to clients that fall under the following fact patterns:
Client does not currently sponsor any tax-qualified plan at all
Client currently sponsors a Simplified Employee Pension (SEP) arrangement and has not yet funded that arrangement for 2016
Client currently sponsors a stand-alone profit sharing plan
Clients with any of these fact patterns are able to implement 401(k) and Safe Harbor provisions (or a new Safe Harbor 401(k) plan) up until October 1st. Unfortunately, employers who currently sponsor a traditional 401(k) plan or a SIMPLE arrangement are precluded from implementing a Safe Harbor election for 2016.
Although an October 1st start date still gives clients a few months for implementation, recordkeepers often require 45-60 days to establish records for a new or converting plan. So if you have clients that want to establish a Safe Harbor feature this year, now is the time to take action to meet that deadline.
ABP can help kick start this process. Reach out to ABP for a discussion of next steps to implement this advantageous plan design for 2016. Further, if your client is locked out of a Safe Harbor design for 2016, it’s not too early to start a dialogue about Safe Harbor provisions for 2017. Since SIMPLE arrangements would need to be terminated by November 1st and Safe Harbor notices need to be distributed by December 1st, initiating the discussions now will allow sufficient time for planning before these Fall deadlines creep up on us.
Please call or email Wes Stohler, firstname.lastname@example.org, if you would like additional information about Safe Harbor 401(k) plans, including financial projections, for any of your prospects or clients.