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Safe Harbor Brochure

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					What’s the Easiest Way to Pass a 401(k)
          NONDISCRIMINATION TEST?



                                  ®
                                  ®
                   TRANSAMERICA . The retirement answer.
Skip it with

       SAFE HARBOR
                                          contributions.

       It’s true. A company can forego 401(k) nondis-

       crimination tests by making a prescribed level of

       safe harbor contributions and giving timely notice

       to employees. Read on to find out how a safe

       harbor 401(k) plan can benefit a plan sponsor

       and to learn more about the rules that make safe

       harbor plans so attractive.
WHAT ARE THE BENEFITS?

SAFE HARBOR PLANS CAN:

     Eliminate 401(k) nondiscrimination tests: Average Contribution Percentage
     (ACP) and Average Deferral Percentage (ADP)

     Permit the maximum allowable elective deferrals for highly compensated
     employees (HCE)

     Eliminate ADP and ACP test fees and time-consuming test preparation

     In some cases, safe harbor contributions can be used to satisfy the top-heavy
     required contributions and be counted in the New Comparability (NCP)
     calculations



HOW DOES IT WORK?
There are two types of safe harbor contributions:
Safe harbor matching and safe harbor non-elective


All safe harbor contributions must be 100% vested. In addition, a timely notice that
describes some of the benefits and features provided under the plan must be provided
to employees.



General
    GUIDELINES
          Basic safe harbor matching: 100% match on deferrals up to 3% of
          compensation plus 50% match on deferrals above 3% but not more than
          5%, for all eligible non-highly compensated employees
          Basic safe harbor non-elective: non-elective contribution equal to at least
          3% of compensation for all eligible non-highly compensated employees
          The employer may also elect to provide the safe harbor match or the safe
          harbor non-elective contribution to highly compensated employees
                        100% vesting for all safe harbor contributions (not required for
                        other employer contributions)
                        No hardship withdrawals on safe harbor contributions
General
  GUIDELINES            Existing profit-sharing plans can be amended to add a safe
          (continued)   harbor 401(k) feature if:
                        •   Plan is not a successor plan
                        •   401(k) feature is effective no later than 3 months before
                            plan year end
                        •   All other safe harbor requirements are satisfied from the
                            date the 401(k) is added to the end of the plan year



                        Amending from safe harbor to traditional matching during the year
                        by eliminating or reducing future matching is permitted if:
                        •   Plan is amended before the effective date of the
                            reduction or elimination and
                        •   Supplemental notice is given to eligible employees explaining
                            consequences of amendment and
                        •   Reduction or elimination of safe harbor matching is effective
                            no earlier than 30 days after supplemental notice is given or
                            the date amendment is adopted, whichever is later and
                        •   Before the elimination or reduction eligible employees are
                            given a reasonable period of time to change their deferral
                            elections and
                        •   The plan amendment states that the ADP/ACP tests will
                            be performed and satisfied for the entire plan year using
                            the current year testing method and
                        •   All other safe harbor requirements are satisfied through
                            the amendment’s effective date
Top-Heavy Testing and Other Rules:
•   Top-heavy minimum contributions are not required for the
    year if the only employer contribution is the safe harbor
    contribution and no forfeitures are allocated that year
•   Safe harbor non-elective contributions can be used to
    satisfy NCP gateway contributions and top-heavy minimum
    contribution requirements
•   ACP test is still required for after-tax employee
    contributions or when match exceeds certain levels
•   Same waiting period for safe harbor matching as for
    elective deferrals
•   Cannot impose last day or hours conditions for eligibility
    to share in safe harbor contributions
•   The discretionary maximum match in addition to the safe
    harbor match cannot be more than 4% of compensation



This is not a comprehensive statement of all safe harbor requirements
and restrictions. Plan sponsors should consult their legal advisor or
call Transamerica for more information.
Which companies are

      THE BEST
      CANDIDATES
      You must compare the cost and time savings of eliminating the need for
      ADP/ACP tests with the expense of 100% vested safe harbor contributions.
      Not all companies are good candidates for a safe harbor plan. Safe harbors
      are ideal for the following types of 401(k) plans:

          Top-heavy plans and New Comparability/401(k) plans

          Plans already providing matches close to safe harbor levels

          Plans already providing high vesting levels

          Plans unable to maximize HCE deferrals due to ADP testing limitations
TO FIND OUT MORE,
CONTACT YOUR

TRANSAMERICA
RETIREMENT SERVICES1
CONSULTANT.
Transamerica Retirement Services (Transamerica or TRS), a marketing unit of Transamerica Financial Life Insurance Company and its affiliates, specializes in
1


the promotion of retirement plan products and services.
TRS1797-0306

				
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