del.icio.us
Digg
Sphere
Stumble
Technorati
Twitter
Two Weeks To Dock in 401(k) Safe Harbor
By Jerry Kalish
If you’re a business owner that sponsors a 401(k) plan, it seems like there’s always some kind of compliance deadline. But here’s one coming up on December 1st--that's two weeks from yesterday, for everyone keeping score--that you may be able to exploit to put more money in your pocket.
What's December 1st? It’s the deadline for you to provide a “Safe Harbor” notice to your employees for 2009. And why should you consider it? Safe Harbor is a provision in the retirement plan law that allows you as an owner to meet the 401(k) discrimination test--and thus avoid the return to you any 401(k) contribution--automatically. And the dollars can be significant: the new 401(k) limits for 2009, just announced by the IRS, are $16,500 plus $5,500 catch-up if you are aged 50 or older.
So what do you have to do in order to take advantage of this for 2009? You can satisfy the Safe Harbor requirements in 2009 (after you give timely notice to your employees) by making one of two types of contributions:
* Contribute at least 3% of compensation to all eligible employees. Generally, the 3% contribution must be provided to all employees eligible to make elective deferrals to the plan even if they make no contributions themselves.
* Contribute a matching contribution equal to 100% of the first 3% of employee contributions, and 50% of the next 2%. So, for example, if every employee contributes at least 5% of compensation, the maximum employer match is 4% of total compensation.
There’s some fine print, of course, to consider, and Safe Harbor plans are not for every business owner. The decision to use the Safe Harbor method to maximize your 401(k) contributions should be based on your objectives and your plan’s demographics.
But if Safe Harbor is right for you, then get out your Sharpie and circle "December 1st" on the calendar. And then get to work.
Jerry Kalish is founder and President of National Benefit Services, Inc., a Chicago-based employee benefit consulting and administrative firm that serves private-held companies, publicly traded companies, and public sector employers. He blogs at The Retirement Plan Blog and can be reached at jerry@nationalbenefit.com.
Comments (0)November 18, 2008 11:04 AM
