3775 / What requirements apply to matching contributions in the context of a 401(k) safe harbor plan?
Editor’s Note: The SECURE Act, enacted December 20, 2019, has eliminated the annual safe harbor notice to participants of their rights and obligations for 401(k) safe harbor plans in the case of nonelective safe harbor plans. In addition, the SECURE Act also allows a nonelective plan to be adopted any time before the 30th day prior to the close of the end of the plan year, and even after until as late as the end of the following plan year; provided, the sponsor makes a 4 percent of compensation rather than the usual 3 percent nonelective contribution, and the plan was not a matching safe harbor 401(k) at any time during the year. These new rules apply for plan years after December 31, 2019.1
The safe harbor matching contribution requirement is met if a matching contribution is made to each nonhighly compensated employee in one of two ways: the basic match or the enhanced match. Both become an obligation of the employer for the plan year (with certain exceptions).
The basic match is an employer contribution equal to 100 percent of the salary deferrals to the extent they do not exceed 3 percent of compensation, plus a match equal to 50 percent of the salary deferrals that exceed 3 percent but do not exceed 5 percent of the compensation.2