Is Your Business FinCen Compliant? Click on the FinCen tab to learn more.
Call 949-652-3377 for a FREE Consultation
Call 949-652-3377 for a FREE Consultation
Employee Exclusion
Safe Harbor 401k - No Non-Discrimination Testing Required!
The Pension Protection Act of 2006 (amended in 2007) made all features of the EGTRRA Act of 2001 permanent. One such feature gave favorable consideration to Safe Harbor 401k plans.
The Safe Harbor plan is the one plan where the owner/employer has no ADP maximum contribution limit for themselves based on their employees' contributions. Basically, this means that the owner can defer the maximum contributions set by law, regardless of employee contributions.
You may have heard of a plan being "Top Heavy", meaning the owner is contributing too much compared to non highly compensated employees.There is no Top Heavy issue with Safe Harbor plans!
The most common type of Safe Harbor plan is the Safe Harbor Match. This type is the best fit when most employees don't work enough hours and don't earn enough to defer into the plan.
Or, they simply aren't inclined to participate in the plan, which is very common among non highly compensated employees.
Let's look at this dynamic in more detail as it relates to most new business entities.
In the early months and years of business ownership, it is more than likely that your main focus will be more on controlling costs than stashing away excess profits. It is also likely that most non highly compensated employees will be more concerned with covering basic living expenses and things like health insurance before they start contributing to a profit sharing plan.
Remember that part time employees (less than 1000 hours) and 1099 contractors are not eligible for the plan.
The point is this. In the early years, you likely won't have much, or any activity within your pension plan. What that means is that your plan won't require constant attention and administration. In reality, it will require little, if any, administration.
Remember too, that employee leasing can be an alternative for full time employees to help control the expense of employer matching contributions.
As a result, you will have a plan in place that will serve as a strong foundation for yourself (and key employees you may want to reward) as your business grows and generates profits, but without any unnecessary administrative expenses.