Safe Harbor Plans Minimize Contribution Testing Requirements

A Safe Harbor 401(k) plan is a simple and popular alternative for businesses.

Unlike traditional 401(k) plans, Safe Harbor plans eliminate annual testing requirements and enable highly compensated employees to contribute the maximum amount to their 401(k) accounts without the risk that their contributions might need to be returned due to a testing failure.

Safe Harbor 401(k) plans do, however, come with their own set of requirements around contributions and vesting and when they may be established or modified.

Considering a Switch?

Plans that are not currently operating with a Safe Harbor plan design may wish to consider switching to a Safe Harbor plan design.

Plans wishing to become Safe Harbor plans for a future calendar year must generally notify their recordkeeper by November of the current year, and must have their plan amended and notification made to their plan participants prior to the beginning of the plan year in which the plan becomes safe harbor.

Every year, plan sponsors must decide whether to continue to use a Safe Harbor plan design.

Two Flexible Plan Design Options

Plan sponsors can choose between a regular Safe Harbor plan or an Automatic Contribution Safe Harbor plan, the key features of which are summarized in the table below.

Feature	Safe Harbor	Automatic Contribution Safe Harbor
Automatic Enrollment	N/A	Automatically enrolls new and/or current employees with a 3-10% contribution rate
Employer Contribution	Basic Match – 100% match on the first 3% of compensation deferred, plus 50% match on deferrals between 3% and 5% of compensation OR Enhanced Match – Must be at least as generous as the basic match formula	Choice #1 – 100% match on the first 1% of compensation deferred, plus 50% on the next 5% of compensation deferred OR Choice #2 – 3% Employer Non-Elective Contribution5
Vesting of Company Match	100% immediate	100% after no more than two years
Eligible for In-service Withdrawals	No, unless age 59 1/2 or older	No, unless age 59 1/2 or older
Eligible for Hardship Withdrawals	No	No

Required Notices for Participants 30 Days Before Plan Year Begins

Participants must be notified when plan sponsors decide to continue using or switch to a Safe Harbor plan design. Participants must receive a notice no later than 30 days prior to the beginning of the plan year in which a Safe Harbor plan design will apply.

If you need to modify your Safe Harbor plan, we encourage consulting your legal counsel.

If you have questions, please contact your PNC representative.

Schedule an appointment

SCHEDULE NOW

Find a branch near you

FIND NOW

Important Legal Disclosures and Information

The material presented herein is of a general nature and does not constitute the provision by PNC of investment, legal, tax, or accounting advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions expressed herein are subject to change without notice. The information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy.

The PNC Financial Services Group, Inc. (“PNC”) uses the marketing names PNC Wealth Management® and Hawthorn, PNC Family Wealth® to provide investment consulting and wealth management, fiduciary services, FDIC-insured banking products and services, and lending of funds to individual clients through PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and to provide specific fiduciary and agency services through PNC Delaware Trust Company or PNC Ohio Trust Company. PNC uses the marketing name PNC Institutional Asset Management® for the various discretionary and non-discretionary institutional investment, trustee, custody, consulting, and related services provided by PNC Bank, and investment management activities conducted by PNC Capital Advisors, LLC, an SEC-registered investment adviser and wholly-owned subsidiary of PNC Bank. PNC uses the marketing names Retirement 1-on-1SM and PNC Financial Wellness Achievement CenterSM for employee education services provided by PNC Bank. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

“PNC Wealth Management,” “Hawthorn, PNC Family Wealth,” and “PNC Institutional Asset Management,” are registered marks, and "Retirement 1-on-1" and "PNC Financial Wellness Achievement Center" are service marks, of The PNC Financial Services Group, Inc.

Investments: Not FDIC Insured. No Bank Guarantee. May Lose Value.

Important Information about Procedures for Opening a New Account

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account. What this means for you: When you open an account, we are required by Federal law to ask for your name, street address, date of birth (for natural persons) and other information as required to identify you. This may include a request or requests for confirmatory information such as presentation of your driver’s license and/or other document(s).