Safe Harbor 401(k) Deadline Approaching

Safe harbor 401(k) plans require an initial plan year at least three months long, making October 1 the effective deadline for establishing a new safe harbor plan in 2014.

ShareBuilder 401k, a subsidiary of Capital One Financial Corporation, is marking the upcoming deadline with a discount promotion for small business owners looking to establish a safe harbor plan. The firm specializes in digitally enabled exchange traded fund (ETF)-based 401(k) plans.

Through the promotion—targeted at small business owners not yet offering retirement benefits to employees—plan sponsors can save $100 on safe harbor plan setup costs. When setting up a plan at, small business owners can enter the promo code “SAVE100.”

Traditional 401(k) plans are subject to annual nondiscrimination testing to ensure that the average deferral rates and employer match contributions of the highly compensated employees do not exceed the average deferral rates of the nonhighly compensated employees by more than (i) 125% or (ii) two percentage points and two times such deferral rates. If the average deferral rates of the highly compensated employees exceed the average deferral rates of the nonhighly compensated employees by more than the legally permitted percentage, then certain remedial steps must be taken.

Safe harbor 401(k)s are not subject to the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) tests. ShareBuilder points out that this provision allows highly compensated employees to max out their annual contributions to defined contribution (DC) retirement plans. In exchange for more relaxed testing requirements, plans of this type must make certain minimum employer contributions and meet other requirements related to vesting, withdrawal restrictions, and participant communications (see “Matching Contributions Under Safe Harbor Plans”).

The ShareBuilder 401k purchase deadline is September 25 for plans to be established with a discount by October 1.

The firm says it can help business owners further minimize plan costs by helping them take advantage of government tax credits and deductions. Businesses starting their first plan with less than 100 employees may also qualify for tax credits of up to $500 to offset setup and administrative pricing, according to the firm, and employer contributions are tax deductible.

“Considering that two out of three new jobs are created by small businesses, and less than half of businesses with 50 or fewer employees offer a retirement plan, it’s crucial for business owners and employees to have access to simple, low-cost 401(k) plans,” says Stuart Robertson, head of ShareBuilder 401k. “Many small businesses miss out on the opportunity to start a 401(k) plan because they are unaware of low-cost options and the government-mandated deadlines like the upcoming October 1 Safe Harbor 401(k) deadline for companies on a calendar fiscal year.”