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The Safe Harbor 401(k) is a salary deferral retirement plan that uses an employer contribution to pass the discrimination test contained in the Internal Revenue Code. The employer makes a non-elective contribution or a specified matching contribution, which is 100% vested. This plan is best suited for businesses that have low employee participation and would otherwise have trouble passing discrimination testing. Two options for employer contributions are available:
A 3 % non-elective contribution based upon wages, or a dollar for dollar match of Employee contributions up to 3% with 50 cent on the dollar match between 3% and 5% Maximum Employer contribution is therefore 4% of wages.
An Age-weighted Profit Sharing Plan is one that allows for higher contributions for older employees who are closer to retirement age. This plan is structured to benefit the older participant. This plan works best when there are a large number of younger employees and only a few older employees. Each participant is allocated a share of employer contributions and forfeitures based upon the amount needed to provide a benefit at retirement age of one percent of pay. Note that if an Age-weighted plan is not preferential because of older non-key employees, an alternative testing can be established that distinguishes between classes of employees, such as officers versus non-officers, in order to meet the non-discrimination testing requirements contained in the Internal Revenue Code.
Contact Mr. Davies for a proposal and illustration for your business.