Attorneys would define a Safe Harbor as a provision of a statute or a regulation that specifies that certain conduct will be deemed not to violate a given rule. In our ERISA world, a Safe Harbor is a provision of the retirement plan law  that can  cut through the sometimes fog of ERISA and provide fiduciary protection to plan sponsors and at the same time make their retirement plans more efficient and effective.  Here is a brief description of some of them.

Contribution Safe Harbors

Let’s start with the contribution Safe Harbors which can satisfy the 401(k) discrimination test through one of three arrangements.

  • Safe Harbor Match. The employer makes a matching contribution of 100% on the first 3% of deferred compensation plus a 50% match on deferrals between 3% and 5% (4% total). The employer’s contribution mjst be 100% vested.
  • Safe Harbor Non-Elective Contribution. The employer makes a contribution of 3% (or more) of a participant’s compensation, regardless of whether he or she makes a 401(k) contribution. As with the Safe Harbor Match, the employer’s contribution must be 100% vested.
  • Qualified Automatic Contribution Arrangement. The inevitable ERISA acronym is QACA which is a newer  type of 401(k) Safe Harbor Plan. QACA’s differ from the first two types in two ways, First, an employee is automatically enrolled if he or she fails to make an affirmative enrollment election in the plan at a specified deferral rate. Second, the employer can impose a vesting schedule of up to a 2 year cliff vesting schedule.

Fiduciary Safe Harbors

In addition to the Contribution Safe Harbors, there are provisions in ERISA that can provide fiduciaries better protection against potential liability.

  • Section 404(c) of ERISA. If certain requirements are met, Section 404(c)  relieves plan sponsors and other fiduciaries from liability for losses resulting from participants’ direction of their investments. Those requirements relate to 1) the investment menu, 2) plan design and administration, and 3) participant disclosures.
  • Qualified Default Investment Alternative. Known by its ERISA acronym, a QDIA can protect a fiduciary from liability for investment decisions. Plan sponsors can designate a default investment fund when a participant fails to make an investment elections.
  • Mandatory Cash-Outs. Plan Sponsors who wants to streamline their plans can eliminate small account balances for terminated employees. Their plans include a provision that requires terminated employees with vested account balances below a certain threshold to be forced to take their money out of the plan.
  • 401(k) Deposit Rules. The law requires that an employer deposit 401(k) contributions as soon as it is “reasonably possible to separate them from the company’s assets”, but no later than the 15th business day of the month following the payday. However, the Department of Labor provides a  more definitive guideline for small plans (those with fewer than 100 participants). if deposited no later than the 7th business day following withholding, these employer are considered  in compliance with the law.


This Safe Harbor discussion is by necessity general in nature, and not applicable in all situations. Plan sponsors should review their plans with their TPAs and advisors to determine if Safe Harbors can provide them fiduciary protection and make their plans more efficient and effective.

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