Safe Harbor 401(k)

As explained in Section II, the Safe Harbor 401(k) plan avoids certain discrimination testing, but it requires minimum employer contributions to all participant accounts. To recap, employers may choose to contribute either:

• A basic match contribution, which is a 100 percent match on the first three percent deferred, plus a 50 percent match on deferrals between three percent and five percent; or

• A three percent non-elective contribution (fixed or "maybe" options). The fixed option is three percent of compensation, while the "maybe" option allows the employer to decide later in the plan year whether to provide a three percent non-elective contribution.

All contributions made on the employees' behalf (by the participating employee as well as the employer) must be vested 100 percent immediately. Additional employer matching contributions may have a three-year 100 percent cliff vesting or six-year graded vesting schedule. Five-year 100 percent cliff vesting or seven-year graded vesting schedules are available for additional employer contributions. In return for this commitment, the plan may be exempt from the ADP and/or ACP nondiscrimination tests (and sometimes top heavy).

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