Safe harbor 401(k)
Certified Financial Planner glossary · Certified Financial Planner
Definition
A plan avoiding ADP and ACP testing through a mandatory, fully vested employer contribution.
Safe harbor 401(k) in plain English
A small plan keeps failing ADP and ACP testing, and highly compensated employees get refunds every year. A safe harbor 401(k) avoids ADP and ACP testing through a mandatory, fully vested employer contribution. That is the bargain: predictable employer money and immediate vesting in exchange for testing relief. Do not treat discretionary profit sharing alone as automatic safe harbor unless the plan actually meets the safe-harbor contribution and notice rules.
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