Understanding The Advantages of Safe Harbor 401(k) Plans versus SIMPLEs

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Understanding The Advantages of Safe Harbor
401(k) Plansversus SIMPLEs

• Presented by
• Mark M. Gutrich
• President CEO
• ePlan Services, Inc.

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What is a Traditional 401k?

• Basics

• Pros Cons

• Plan Adoption Agreement
• Flexible Eligibility
• 18 to 21 Years of Age
• Worked 1,000 hours/year
• Optional Contributions
• Deferral Matching
• Profit Sharing
• Elective Deferrals
• 100 of Compensation
• Up to 15,500/year
• 5,000 Catch-Up if 50

• PROS
• Easy to Set-Up Administer
• No Mandatory Contributions
• Permitted Disparity Designs
• Optional Vesting Schedules
• Optional ROTH Contributions
• Optional Loan Feature
• CONS
• Annual Tax Filings
• Annual Administration Fees
• Annual Discrimination Tests

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What is a Safe Harbor 401k?

• Basics

• Pros Cons

• Plan Adoption Agreement
• Flexible Eligibility
• 18 to 21 Years of Age
• Worked 1,000 hours/year
• Mandatory Contributions
• 3 of Annual Compensation
• OR -
• 3.5 to 4 Match on Deferrals
• Elective Deferrals
• 100 of Compensation
• Up to 15,500/year
• 5,000 Catch-Up if 50

• PROS
• Easy to Set-Up Administer
• No Discrimination Testing
• Optional Profit Sharing
• Optional Vesting Schedules
• Optional ROTH Contributions
• Optional Loan Feature
• CONS
• Annual Tax Filings
• Annual Administration Fees
• Mandatory ER Contributions

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How Can They Be Structured?

• Non-Elective Safe Harbor

• Safe Harbor Match

• Mandatory Contributions
• Flat 3 of Compensation
• Regardless of Participation
• Owner/HCE Deferrals
• 100 of Compensation
• Up to 15,500/year
• 5,000 Catch-Up if 50
• Can Wait To Notify
• Determined Annually
• 30 Days Before Year-End

• Matching Contributions
• 100 up to 3 Comp
• 50 on next 2 Comp
• Owner/HCE Deferrals
• 100 of Compensation
• Up to 15,500/year
• 5,000 Catch-Up if 50
• Must Pre-Notify
• Determined Annually
• 30 Days Before Plan Year

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Whats The Difference?
Employees Avg Defrral Annual Comp 2 Owners
Max 300,000 1 Highly Compensated Employees
(HCEs) 10 105,000 4 Non-HCEs (Participate)
5 160,000 3 Non-HCEs (Dont Participate)
0 90,000 TOTAL PAYROLL 655,000
Non-Elective Safe Harbor
Safe Harbor Match

• SH NEC Summary Contrib
• Owners 9,000 46
• HCEs 3,150 16
• NHCEs 7,500 38
• TOTAL 19,650
• (Immediately Vested)

• SH Match Summary Contrib
• Owners 12,000 53
• HCEs 4,200 19
• NHCEs 6,400 28
• TOTAL 22,600
• (Immediately Vested)

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What If Excluded Owners/HCEs?
Employees Avg Defrral Annual Comp 2 Owners
Max 300,000 1 Highly Compensated Employees
(HCEs) 10 105,000 4 Non-HCEs (Participate)
5 160,000 3 Non-HCEs (Dont Participate)
0 90,000 TOTAL PAYROLL 655,000
Non-Elective Safe Harbor
Safe Harbor Match

• SH NEC Summary
• Owners - - 0 -
• HCEs - - 0 -
• NHCEs 3 7,500
• TOTAL 1.1 7,500
• (Immediately Vested)

• SH Match Summary
• Owners - - 0 -
• HCEs - - 0 -
• NHCEs 2.6 6,400
• TOTAL 1.0 6,400
• (Immediately Vested)

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SIMPLE v. SH401k

• SIMPLE

• Safe Harbor 401(k)

• No Administrative Fees
• No Annual Tax Filings
• No Discrimination Testing
• Must Include ALL Employees
• Max Personal Deferrals
• 100 Compensation
• Up to 10,500
• 2,500 Catch-Up if 50
• Mandatory Contributions
• 2 of Annual Compensation
• OR -
• 3 Match on Deferrals
• 100 Immediately Vested

• Low Administrative Fees
• Easy Annual Tax Filings
• No Discrimination Testing
• May Exclude Employees
• Max Personal Deferrals
• 100 Compensation
• Up to 15,500
• 5,000 Catch-Up if 50
• Mandatory Contributions
• 3 of Annual Compensation
• OR
• 4 Match on Deferrals
• 100 Immediately Vested

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How Do They Compare?
Employees Avg Defrral Annual Comp 2 Owners
Max 300,000 1 Highly Compensated Employees
(HCEs) 10 105,000 4 Non-HCEs (Participate)
5 160,000 3 Non-HCEs (Dont Participate)
0 90,000 TOTAL PAYROLL 655,000
SIMPLE Match
Safe Harbor Match 401(k)

• SH Match Summary
• Owners 3 9,000
• HCEs 3 3,150
• NHCEs 1.9 4,800
• TOTAL 2.6 16,950
• (Immediately Vested)

• SH Match Summary
• Owners - - 0 -
• HCEs - - 0 -
• NHCEs 2.6 6,400
• TOTAL 1.0 6,400
• (Immediately Vested)

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Who Gets The Benefit?
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Isnt There A Vesting Version?

• Automatic Enrollment Safe Harbor 401(k)

• Enroll Every Employee
• Minimum 3 Deferral
• Employee May Opt Out
• Automatic Increases
• Scheduled Annual Increases
• Scale up to 6 over 3 yrs
• Mandatory Contributions
• 100 of first 1 Deferral
• 50 of next 5 Deferral

• Available Vesting Schedules
• Immediate
• 50 per Year
• 2-Year Cliff
• Benefits
• Creates Retention Plan
• Forfeit Contributions
• Pay Annual Plan Expenses
• Offset Future Contributions
• Distribute to Vested EEs

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How Does It Work?
Employees Avg Defrral Annual Comp 2 Owners
Max 300,000 1 Highly Compensated Employees
(HCEs) 10 105,000 4 Non-HCEs (Stay In)
5 160,000 3 Non-HCEs (Opt Out) 0
90,000 TOTAL PAYROLL 655,000

• Enroll Every Employee
• 3 Deferral
• 1 Escalator/Year
• Offer Employees Opt-Out
• Start Making Contributions

• AutoEnroll SH Match Summary
• Owners - - 0 -
• HCEs - - 0 -
• NHCEs 1.9 4,800
• TOTAL 0.7 4,800
• (Vested Over 2 Years!)

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SIMPLE v. AE401k

• SIMPLE

• AutoEnroll 401(k)

• No Administrative Fees
• No Annual Tax Filings
• No Discrimination Testing
• Must Include ALL Employees
• Max Personal Deferrals
• 100 Compensation
• Up to 10,500
• 2,500 Catch-Up if 50
• Mandatory Contributions
• 2 of Annual Compensation
• OR -
• 3 Match on Deferrals
• 100 Immediately Vested

• Low Administrative Fees
• Easy Annual Tax Filings
• No Discrimination Testing
• May Exclude Employees
• Max Personal Deferrals
• 100 Compensation
• Up to 15,500
• 5,000 Catch-Up if 50
• Mandatory Contributions
• 3 of Annual Compensation
• OR -
• 3.5 Match on Deferrals
• Up to 2 yr Vesting Schedule

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How Do They Compare?
Employees Avg Defrral Annual Comp 2 Owners
Max 300,000 1 Highly Compensated Employees
(HCEs) 10 105,000 4 Non-HCEs
(Participate/Stay In) 5 160,000 3 Non-HCEs
(Dont Participate/Opt Out) 0
90,000 TOTAL PAYROLL 655,000
SIMPLE Match
AutoEnroll SH Match 401(k)

• SH Match Summary
• Owners 3 9,000
• HCEs 3 3,150
• NHCEs 1.9 4,800
• TOTAL 2.6 16,950
• (Immediately Vested)

• SH Match Summary
• Owners - - 0 -
• HCEs - - 0 -
• NHCEs 1.9 4,800
• TOTAL 0.7 4,800
• (Vested Over 2 Years!)

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Who Gets The Benefit?
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How Do I Decide?

• Objective/Decision

• Plan Type

• Do Owners Want to Defer
• 10,500/year
• 15,500/year
• Does Employer Want
• Give Employees Money
• Offer Savings Incentives
• Does Employer Want
• Unconditional Benefit
• Retention Benefit

• SIMPLE
• 401(k)
• NEC SH 401(k) or SIMPLE
• Match SH 401(k) or SIMPLE
• SH 401(k) or SIMPLE
• AutoEnroll SH Match 401(k)

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Dates To Remember

• Notify Re SH Match December 1st
• (Previous Year)
• Convert SIMPLE to SH401k January 1st
• (Current Year)
• Determine SH NEC November 31st
• (Current Year)
• Establish New SH401k October 1st
• (Current Year)

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Questions Answers