More and more employers
are deciding to adopt the 401(k) safe harbor
feature added by SBJPA '96 so that they
can eliminate ADP testing and for overall
more efficient retirement planning.
You may recall that the safe harbor 401(k)
rules permit a plan to forego ADP testing
if it makes an employer contribution to
all NHCE's of at least 3 percent of pay,
or makes a matching contribution of 100
percent of the first 3 percent employee
deferral, plus 50 percent of the next 2
percent of deferral.
Many small and medium-size companies are
finding that the safe harbor contributions,
which can also count toward top-heavy and
other non-discrimination requirements (e.g.,
new comparability), become an important
cornerstone in the re-design of their firm's
retirement plan(s), providing for maximum
utilization of the tax-favored benefits
for the business owners.
NRS believes that all employers need to
review the interplay of these various provisions,
especially in light of EGTRRA's increased
limits. Please discuss this matter with
you NRS Account Manager as soon as possible
if you sense that your plan may be a candidate
for such enhancements.