Top 3 Safe Harbor 401(k) Plan Designs

Focus Article: Getting to know the top Safe Harbor Plan designs and how they work.

Last Updated: August 4, 2020

There are three Safe Harbor Plan types that employers may select when working with their plan design consultant at Uniglobal: Safe Harbor Match, Safe Harbor Non-Elective, and QACA Safe Harbor.

In this focus article we'll explore each one in detail so you can make an informed decision entering the consultation phase. 

But, first, why choose a Safe Harbor plan? Simply put, this type of plan will satisfy nondiscrimination for ADP and ACP testing. This is important for employers who want to provide a retirement plan for their employees and benefit from the plan themselves without consequence arising from test failure (i.e. getting money back as a refund).

For more on nondiscrimination testing, see our focus article What's Nondiscrimination Testing?

Safe Harbor Match

As the name suggests, this type of plan design leverages a required employer Matching contribution to satisfy testing. Generally speaking, an employer Match is a type of contribution that is allocated to eligible plan participants that actively contribute to their own accounts through salary reduction (sometimes referred to as "pre-tax deferrals," "salary deferrals," and "Roth contributions"). 

Unlike a discretionary Match, a Safe Harbor Match under IRC §401(k)(12) must not have any requirements tied to it for a plan participant to be eligible for the Match. In other words, any plan participants who works 1 hour during the plan year and also defers into the plan would be eligible for the Match. 

Often, we see requirements to share in the employer contribution when that contribution is at the sole discretion of the employer sponsoring the plan. In its most restrictive form, the plan could require a participant work 1000 hours during the plan year AND be employed on the last day of the plan year to receive a Match. This requirement is not applicable to the Safe Harbor Match. Unlike a discretionary Match, a Safe Harbor Match may not prescribe allocation conditions for participants to share in the Match. In other words, any plan participant who works 1 hour during the plan year and also defers into the plan would be eligible for the Match.

Safe Harbor Match Formula Examples

Traditional Safe Harbor Match

  • Formula: 100% of Salary Deferrals on the First 3% of Compensation PLUS 50% of Salary Deferrals on the next 2% of Compensation

Participants deferring 3% will receive a 3% Match, those deferring 4% will receive a 3.50% Match, and any participant contributing 5% or more of their compensation will receive the full 4% Match.


There is a narrow window the formula must fall to be considered Safe Harbor. It cannot consider deferrals in excess of 6% of compensation for the Match if the plan is to satisfy the Actual Contribution Percentage (ACP) test.

Enhanced Safe Harbor Match

Employers can select from any number of enhanced formulas, provided they are at least as generous as the traditional. Your design consultant will work with you to find the right Matching formula for your plan. Here are some options.

  • Formula: 100% of Salary Deferrals up to 5% of Compensation
  • Formula: 100% of Salary Deferrals up to 6% of Compensation
  • Formula: 100% of Salary Deferrals on the First 3% of Compensation PLUS 75% of Salary Deferrals on the next 3% of Compensation
  • Formula: 100% of Salary Deferrals on the First 4% of Compensation PLUS 25% of Salary Deferrals on the next 2% of Compensation

The list goes on and on but rest assured we will help you find the right fit for your company and plan.

Safe Harbor Non-Elective

A Safe Harbor Non-Elective contribution will satisfy the ADP safe harbor contribution requirement if it equals at least 3 percent of the employee's compensation. This is not a Match, it is a Non-Elective Contribution. Non-Elective means that eligible participants do not have to elect to defer contributions from their compensation in order to receive this type of contribution. Non-Elective Contributions are sometime referred to as Profit Sharing, which is not entirely accurate An employer need not have profits to contribute this type of contribution (501(c)(3) and other tax-exempt or non-profit organizations, for example).

However, like the Match, the Non-Elective contribution must be provided to all eligible Non-Highly Compensated Employees (NHCEs). Highly Compensated Employees (HCEs) may or may not share in the Safe Harbor Non-Elective contribution; often, we see them excluded in more complex multi-plan designs.

A contribution greater than 3% of compensation is permitted. An eligible NHCE must receive the Non-Elective contribution regardless of whether he or she chooses to make elective contributions under the 401(k) arrangement. 

Some employers prefer the Non-Elective contribution because it guarantees at least some retirement savings, even for those participants who do not choose to, or cannot afford to, make elective (pre-tax/Roth) contributions to the 401(k) plan.

Costs are more predictable utilizing Safe Harbor Non-Elective: 3% of compensation is 3% of compensation. With the matching contribution, only those eligible participants who choose to defer will receive the allocation. This makes budgeting a bit tougher for the employer.

At participation rates greater than 75% of eligible participants deferring at least 5% of compensation, the Match is actually more expensive to the employer than the Non-Elective.

Example #1

Company A offers a Safe Harbor Match (traditional formula). They have 100 eligible participants, each participant earns $100,000 per year ($10M total considered payroll), 85 of the 100 defer 5% of compensation or more for the year. 

Under this formula, any participant deferring 5% or more will receive the full 4% of compensation Match.

The employer's Safe Harbor Match contribution liability for the year is 4% of $8,000,000, or 3.40% of the total payroll.

Safe Harbor Non-Elective is 3% of total participating payroll. Had the employer selected the Non-Elective Safe Harbor it would have saved $40,000 in required contributions - $300,000 for Safe Harbor Non-Elective versus $340,000 for Safe Harbor Matching.

If the employer wants to combine a Safe Harbor 401(k) plan with a cross-tested (New Comparability) Profit Sharing plan, the 3% Safe Harbor Non-Elective contribution may be included in cross-testing. In this way, this contribution does double duty.

  1. It satisfies the ADP test for nondiscrimination thereby permitting the HCEs to make elective contributions in any amount allowed under law and the plan document, and
  2. It counts as an employer contribution for the nondiscrimination testing of the Profit Sharing contribution whereas the Match may not.

Using the Safe Harbor Non-Elective in conjunction with additional Profit Sharing saves the employer from contributing much more than it otherwise intended to allocate to plan participants. In some instances, this could be double or more. 

QACA Safe Harbor

Under IRC §401(k)(13), a qualified plan may elect to be a QACA (Qualified Automatic Contribution Arrangement) Safe Harbor plan. This type of Safe Harbor plan has several key features:

  1. ADP and/or ACP Nondiscrimination testing is deemed to be satisfied, 
  2. An eligible automatic contribution arrangement (EACA) provision is in place to facilitate the automatic enrollment requirement at a specific minimum, and
  3. The QACA Safe Harbor contribution formula is either a Match or a Non-Elective; the Match is slightly less generous than the traditional Safe Harbor Match formula and the Non-Elective is the same (3% of compensation).

What is an EACA?

We sure love our acronyms, so here is another: An EACA, or Eligible Automatic Contribution Arrangement, is an elective deferral arrangement and integral part of the QACA Safe Harbor, in which all of the following criteria are met:

  • A participant has the option to elect to defer his or her compensation into the plan by having the employer make a contribution to the plan instead (i.e. the participant is eligible to defer into the plan and there is automatic enrollment);
  • A participant is deemed to have made a deferral election in an amount equal to a uniform percentage of compensation until otherwise elected (i.e. a default % of compensation is fixed in the plan that will serve as the starting deferral rate for the newly automatically enrolled participant (unless another %, including 0% is elected by the participant); and
  • Annual notice requirements of IRC §414(w)(4) are met (among other things, generally, you must let participants know they'll be automatically enrolled, have compensation withheld from pay at a set percentage, and whether or not there is an employer contribution and what amount)

What is the minimum automatic elective contribution percentage under QACA?

Under QACA, the initial automatic elective contribution percentage must be no less than 3% and no greater than 10% for the first year, 15% in year 2 (thanks to the SECURE Act). However, if the initial percentage is less than 3% it must ratchet up to 6% by the third year following the initial year that it is less than 3%.

What is the required employer contribution under the QACA Safe Harbor?

The required employer contribution is one of the following standard formulas:

  • Match: 100% of 1st 1% + 50% of deferral over 1% up to 6%, or
  • Non-Elective: 3% of Compensation

Alternatively, the plan may opt for an Enhanced formula. This could be a 4% or 5% Non-Elective contributions, or a more generous Match formula. There are limits with the Match but within those limits there are a number of options for plan sponsors.

QACA Safe Harbor plans have many progressive features that gently encourage participants to save for retirement in a manner that feels automated. Let's assume for a moment that your plan is a QACA Safe Harbor Plan with automatic enrollment at 3% and an annual automatic escallation of 1% per year capped at 15%. A new hire is automatically enrolled at 3%, assuming that this participant does not elect a lower percentage (including 0%), and is automatically escalated each year to a higher deferral percentage, again without opting out. This participant's deferral rates and employer Safe Harbor match contributions will follow this path:


Year Deferral % QACA Safe Harbor % Total %
Year 1 3.00% 2.00% 5.00%
Year 2 4.00% 2.50% 6.50%
Year 3 5.00% 3.00% 8.00%
Year 4 6.00% 3.50% 9.50%
Year 5 7.00% 3.50% 10.50%
Year 6 8.00% 3.50% 11.50%
Year 7 9.00% 3.50% 12.50%
Year 8 10.00% 3.50% 13.50%
Year 9 11.00% 3.50% 14.50%
Year 10 12.00% 3.50% 15.50%
Year 11 13.00% 3.50% 16.50%
Year 12 14.00% 3.50% 17.50%
Year 13 15.00% 3.50% 18.50%
Year 14 15.00% 3.50% 18.50%


As shown above, the employer's portion does not exceed 4.50% of compensation after the participant reaches a deferral rate of 6.00%. This is the maximum percentage of compensation the QACA Safe Harbor standard match formula mandates for the employer. The benefit to the employee over time affords him or her an increased employer contribution up to the maximum and the benefit of contributing more each year towards retirement automatically.

Learn More

Safe Harbor plans have many great benefits. If you'd like to learn more about how one of these designs could benefit you and your plan participants, use our contact form to reach out, we're happy to help.