By Sheri A. Creger, CPFA Ι August 2, 2017
The deadline of October 1st to start a new Safe Harbor 401(k) Plan for 2017 is fast approaching!
For the right company, a Safe Harbor 401(k) Plan offers real advantages over a traditional 401(k) plan. Safe Harbor Plans make it possible for owners and highly-compensated employees (HCEs) to make the maximum salary deferral contributions to the plan even if other employees make limited or no contributions. Equally important, by including a Safe Harbor provision, the plan avoids the possibility of corrective taxable refunds that might otherwise be required due to a compliance testing failure.
Why do you need to act quickly? An Employer who would benefit by starting a new Safe Harbor 401(k) Plan in 2017 needs their plan to be fully operational by October 1, 2017. This “operational by October 1st” deadline is necessary in order to satisfy the “safe harbor” condition on this type of qualified retirement plan which requires that employees are allowed at least 3 months to make salary deferral contributions.
While the IRS deadline for starting a Safe Harbor 401(k) Plan is October 1st, setting up a new 401(k) plan can take at least a month or more. So the practical deadline is actually closer to mid-August. If you are interested in establishing this type of plan for 2017, we encourage you to act now to enable your assembled team to have enough time to get it completed for you.