The basic safe harbor match formula is 100% on the first 3% of deferred compensation and 50% on the next 2% for a max of 4% if you defer 5% or more.
Sample Safe Harbor Match Illustration (Basic Match)
Wages | Deferrals | Deferral Percentage | SHM Percentage | SHM Amount |
$50,000 | $0 | 0% | 0% | $0 |
$50,000 | $500 | 1% | 1% | $500 |
$50,000 | $1,000 | 2% | 2% | $1,000 |
$50,000 | $1,500 | 3% | 3% | $1,500 |
$50,000 | $2,000 | 4% | 3.5% | $1,750 |
$50,000 | $2,500 | 5% | 4% | $2,000 |
An enhanced safe harbor match is no less than the basic match at any tier level. The most common enhanced safe harbor match formula is a 100% match on the first 4% of deferred compensation. The maximum match for the enhanced formula would be 100% on the first 6% of deferred compensation.
Sample Safe Harbor Match Illustration (Enhanced Match)
Wages | Deferrals | Deferral Percentage | SHM Percentage | SHM Amount |
$50,000 | $0 | 0% | 0% | $0 |
$50,000 | $1,000 | 2% | 2% | $1,000 |
$50,000 | $1,500 | 3% | 3% | $1,500 |
$50,000 | $2,000 | 4% | 4% | $2,000 |
$50,000 | $2,500 | 5% | 4% | $2,000 |
$50,000 | $3,000 | 6% | 4% | $2,000 |
A plan with a safe harbor match and no additional employer contributions will pass ADP, ACP and top heavy tests.
There are other safe harbor match formulas, such as the matching contribution for a QACA (qualified automatic enrollment arrangement) which is 100% of an employee's contribution up to 1% of compensation and a 50% matching contribution for the employee's contributions above 1% of compensation and up to 6% of compensation.
While a safe harbor match generally has 100% immediate vesting, a QACA matching contribution must be 100% vested by two years of service. More information on QACA can be found HERE.
(FAQ09RP)