J.G. Gaston & Associates, Inc. Actuarial Consulting Services for Business, Government, and the Individual

401(k) Safe Harbor Plans


A 401(k) safe harbor plan is a defined contribution plan that may consist of three components:

  • employee 401(k) elective salary deferrals;
  • safe harbor employer contributions; and
  • discretionary profit sharing contributions.

The accumulated value of these three components provide a lump sum retirement benefit for employees that may be rolled over to an Individual Retirement Account ("IRA") upon retirement. The safe harbor employer contribution automatically satisfies required nondiscrimination testing applicable to 401(k) plans.

The safe harbor employer contribution may be either a 3% contribution for all employees or a basic safe harbor matching contribution of 100% on the first 3% of salary deferrals and 50% on salary deferrals between 3% and 5% of pay (for a maximum of 4%). The safe harbor contribution is required to be 100% immediately vested.

In our area of defined contribution plan practice, we often deal with business owners whose plans are considered "top-heavy" and are thus subject to minimum contribution requirements. The 3% safe harbor contribution automatically satisfies both the minimum contribution requirement for top-heavy plans as well the required nondiscrimination testing applicable to 401(k) plans. This allows owners to take full advantage of the 401(k) elective contribution limits under 401(k) rules ($17,500 for 2013). Furthermore, owners who are 50 or older during the plan year may contribute a 401(k) "catch-up" contribution ($5,500 for 2013) for a total 401(k) salary deferral of $23,000 for 2008. Employer contributions and 401(k) salary deferrals for an individual may not exceed the Internal Revenue Code Section ยง415 limit ($51,000 for 2013). (The $5,500 catch-up contribution does not count towards this limit.)


For 2013, compensation in excess of $255,000 may not be considered for purposes of determining plan contributions. Following is an illustration of a 401(k) safe harbor plan that includes an employer discretionary profit sharing contribution designed to maximize contributions to the owners.

Employee Age




Profit Sharing Contribution

3% Safe

Harbor Contribution

Employee 401(k) Contribution




Principal1 50 255,000 25,850 7,650 23,000 56,000
Principal2 40 255,000 25,850 7,650 17,500 51,000
Sub-total   510,000 51,700 15,300 37,500 107,000
Staff1 35 40,000 2,835 1,200 0 4.035
Staff2 30 30,000 2,127 900 0 3,027
Staff3 25 20,000 1,418 600 0 2,018
Sub-total   90,000 6,380 2,700 0 9,080
Grand Total   600,000       116,080
Ratio of Principal to Employee          
11.8 to 1