ABCompany-Safe Harbor Removal
Removing Safe Harbor
Currently ABCompany, Inc. provides a 3 percent Safe Harbor non-elective contribution to all participants who have had a least one year of service, which is defined as 1000 hours in a year. Once individuals are eligible for the Safe Harbor contribution, he/she will receive it each year regardless of the hours worked or if he/she is employed on December 31, the last day of the plan year. Removing the Safe Harbor designation will impact the plan. It will affect the amount of deferral contributions highly compensation employees are able to fund. It will also influence the total contribution amount that ABCompany, Inc. funds into the plan.
Impacts on Annual Contribution Amount and Forfeitures
Vesting is the second component needing to be considered when reviewing a Safe Harbor design. A Safe Harbor contribution is required to be 100 percent vested immediately–regardless of how long a team member has worked for the organization. If the Safe Harbor is removed, ABCompany would be able to attach a vesting schedule to the 3 percent non-elective contribution. Adding a vesting schedule will increase plan forfeitures because any unvested dollars in a participant’s account at the time of distribution is forfeited back to ABCompany. ABCompany is then able to offset future contributions and/or pay plan expenses. As of December 31, 2017, there was $142,000 of Safe Harbor contributions in the accounts of former ABCompany team members who had less than three years of service. This represents the amount of forfeitures available to ABCompany if a three year cliff vesting schedule had been attached to the previous Safe Harbor non-elective contributions. To summarize, if ABCompany would have not been Safe Harbor from 2015 to 2017, it would have saved a cumulative total of $305,000 in annual contributions. In addition, the plan would have approximately $142,000 of forfeitures available to offset their annual contribution, which would ultimately reduce the amount that ABCompany needs to fund. Combining these two figures equates to $447,000 of savings ABCompany would have experienced over a three year period, if the plan had not utilized a Safe Harbor design. Summary
Impact of attaching allocation conditions to the ABCompany contribution:
If the Safe Harbor is removed, ABCompany has the option to attach allocation conditions to the annual contribution–requirements an individual must meet each year in order to receive the year-end contribution. The most common is requiring 1000 hours during the year and being employed on the last day of the plan–December 31. Attaching these conditions to the year-end contribution will reduce the amount that ABCompany is required to fund, when compared against funding a Safe Harbor non- elective contribution. Below are the savings ABCompany would have experienced from 2015 to 2017, if team members were required to work 1000 hours during the year and be employed on 12/31 to receive the year end contribution:
• 2017 = $90,000 • 2016 = $109,000 • 2015 = $106,000
The amounts equate to money that was given to team members who either did not work 1000 hours in the year referenced, or separated employment from ABCompany during the identified year.
Made with FlippingBook HTML5