Magic City Morning Star

Advertising | RSS Feed | About Us 

Last Updated: Oct 13, 2013 - 12:38:22 AM 

An eclectic mix of news and information
Staff Login
Donate towards our web hosting bill!

Front Page 
  News
  -- Local
  -- State
  -- National
  Community
  Business
  -- IRS News
  -- Win at Work
  Education
  -- History
  Tech Notes
  Entertainment
  -- Comics
  International
  -- R.P. BenDedek
  -- Kenneth Tellis
  Outdoors
  Sports
  Features
  -- M Stevens-David
  -- Down the Road
  Christianity
  Today in History
  Opinion
  -- Editor's Desk
  -- Guest Column
  -- Scheme of Things
  -- Michael Devolin
  -- Tom DeWeese
  -- Ed Feulner
  -- Jim Kouri
  -- Julie Smithson
  -- J. Grant Swank
  -- Doug Wrenn
  Letters
  Agenda 21
  Book Reviews
  -- Old Embers
  Notices
  Archive
  Discontinued


Web Directory Reviews
WDR Directory of Directories
Restore The Republic - The Home of the Freedom Movement!

Money Cents

Safe Harbor 401(k)s May Be A Retirement Plan Alternative For Small Businesses
By Shelley Phillips-Mills
Aug 1, 2005 - 1:48:00 PM

Email this article
 Printer friendly page
As a small business owner, you know there are several retirement plan options available. And, as the number of small businesses continues to grow, it is important to provide your employees with the best options possible in order to retain them.

Selecting the best retirement plan that meets your needs and those of your employees can sometimes be difficult. It is important to look at the details of the plans to ensure that the plan you select is the most appropriate plan.

For example, many employers who currently maintain 401(k) plans are disappointed when they realize that, at the end of the year, they must refund contributions to highly compensated employees because of low or reduced participation levels from the rank-and-file employees.

To help business owners avoid this situation, a safe harbor 401(k) may serve as a better alternative to help enhance contributions for the highly compensated employees, while keeping overall administration costs in check.

A safe harbor 401(k) is a retirement plan that allows highly compensated employees to make salary deferral contributions up to the designated limit for a given year ($13,000 for 2004), regardless of the participation level of regular employees and as long as the employer commits to a certain level of contributions.

To understand the benefits of the safe harbor 401(k), you must first understand annual discrimination testing applicable in traditional 401(k) plans.  You may be asking – what is discrimination testing? The employer must perform two tests to ensure that the amounts deferred by employees and the employer’s matching contributions do not discriminate in favor of the business owners and other highly compensated employees.

The Actual Deferral Percentage test ensures that the rate of deferrals for highly compensated employees is not excessive compared with that of non-highly compensated employees. If a retirement plan fails this test, the employer must refund contributions to highly compensated employees (which are taxable to the employee) or make additional contributions on behalf of non-highly paid employees.

The Actual Contribution Percentage test applies to the rate of matching contributions on behalf of highly compensated employees versus the average employee in much the same way as the Actual Deferral Percentage test.

The advantage of a safe harbor 401(k) is that it does not require the complicated discrimination testing. Instead, the plan must meet both contribution and notification requirements and the employer must make a minimum fully vested contribution to the plan using one of the following methods:

Matching contributions for each eligible participating employee. Under the match formula, the employer will provide the safe harbor contribution to any employee that elects to defer, through salary deferrals, into the plan. This method has basic and enhanced match formulas.

The basic match formula is defined as a 100 percent match on the first three percent deferred and a 50 percent match on deferrals between three and five percent of salary. The enhanced match formula allows the plan sponsor to tailor the formula used to match. Nonetheless, it must be equal to at least the amount a participant would receive under the basic match.

Non-elective contributions of three percent of pay for all eligible employees. Under the non-elective formula, the employer will provide a minimum of three percent safe harbor contributions to all eligible employees, regardless of their participation in the plan.

All eligible employees must receive a written notice describing the applicable safe harbor provision between 30 and 90 days before the beginning of the plan year. This notice must be provided for each year the plan will be a safe harbor plan.

As you can see, a safe harbor 401(k) may be an attractive option for your small business and employees. Your financial consultant can help you sort through the options and find the most appropriate plan for your business. If you would like to receive the A.G. Edwards’ publication, “2005 Retirement Plans Overview for Professionals: A Summary of Common Business Retirement Plans,” please contact financial consultant, Shelley Phillips-Mills in Bangor at 1-800-947-5456.

This article was provided by A.G. Edwards & Sons, Inc., Member SIPC.


© Copyright 2002-2013 by Magic City Morning Star

Top of Page

Money Cents
Latest Headlines
Safe Harbor 401(k)s May Be A Retirement Plan Alternative For Small Businesses
What About Investing in Real Estate?
Searching For Income in Your Investments
Turn to a Professional for Trust Management Services
Controlling Risk In Your Investments

A Dinosaur of Education - a blog by James Fabiano.
Shobe Studios
Wysong Foods - Pets and People Too

Google
 
Web magic-city-news.com