PLANSPONSOR - February/March 2021 - 26

PLAN DESIGN | COMPLIANCE
Shelter
From
A Storm
Being a safe harbor
plan could protect it
from turbulence
T
he IRS provided relief last year to
safe harbor plan sponsors that were
unable to make the matching contributions
that their plans required. In
light of the economic and business challenges
posed by the ongoing COVID-19
pandemic, the IRS allowed employers
to reduce or suspend their contributions
without sacrificing safe harbor status.
Plan sponsors that took advantage
of this option-as well as those without
a safe harbor plan-may have spent the
past few months performing the nondiscrimination
testing required for plans not
qualifying as safe harbor. This process
presents an opportunity for sponsors to
re-evaluate whether they should keep
their plan's safe harbor design.
Whether safe harbor status is
appropriate for your company's plan is
a conversation that you as plan sponsor
should have regularly with your adviser or
consultant, says Dave Stinnett, principal
of strategic retirement consulting in the
Philadelphia offices of Vanguard, approximately
one-quarter of whose clients' plans
have a safe harbor design. " It's a topic
that should be part of ongoing committee
meetings, " Stinnett says. " It's just good
hygiene to discuss regularly. "
While it may make sense to discuss
the matter now, employers that want the
switch made to safe harbor may not do
so until next year. Then, they would need
to amend their plan before the end of the
current plan year and provide a notice to
participants 30 to 90 days before the start
of the new plan year, says Scott Gehman,
a retirement plan consultant with Conrad
Siegel in Harrisburg, Pennsylvania.
To begin the discussion, consider
asking these questions:
1) Does your company regularly
pass, or fail, nondiscrimination
testing requirements?
Plans lacking safe harbor status must
conduct annual average deferral percentage
(ADP) and average contribution percentage
(ACP) testing. If the plan fails these tests,
the sponsor must either refund some of
the contributions that highly compensated
26 PLANSPONSOR.COM February - March 2021 Art by Holly Allerellie
employees (HCEs) made throughout the
year, or make additional contributions
to non-highly compensated employee
(NHCE) accounts in order to bring the plan
into compliance, Gehman says. Plans that
regularly fail these tests might be better
suited for a safe harbor plan, which would
eliminate both the requirement for testing
and the need for remedies, he says.
That testing requirement often
makes safe harbor plans a good option for
smaller businesses or professional service
firms where there are few employees, and
a large share of them are high earners,
Gehman says. Overall, 57% of respondents-including,
on average, 70% of

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PLANSPONSOR - February/March 2021

Table of Contents for the Digital Edition of PLANSPONSOR - February/March 2021

Service for a Crowd
2020 PLANSPONSOR Best in Class 401(k) Plans
Shelter From a Storm
From Volatility to Stability
Are Annuities Good for All?
Regrowth Factor
When 'Herding' Helps
PLANSPONSOR - February/March 2021 - Cover1
PLANSPONSOR - February/March 2021 - Cover2
PLANSPONSOR - February/March 2021 - 1
PLANSPONSOR - February/March 2021 - 2
PLANSPONSOR - February/March 2021 - 3
PLANSPONSOR - February/March 2021 - 4
PLANSPONSOR - February/March 2021 - 5
PLANSPONSOR - February/March 2021 - 6
PLANSPONSOR - February/March 2021 - 7
PLANSPONSOR - February/March 2021 - 8
PLANSPONSOR - February/March 2021 - 9
PLANSPONSOR - February/March 2021 - 10
PLANSPONSOR - February/March 2021 - 11
PLANSPONSOR - February/March 2021 - 12
PLANSPONSOR - February/March 2021 - 13
PLANSPONSOR - February/March 2021 - Service for a Crowd
PLANSPONSOR - February/March 2021 - 15
PLANSPONSOR - February/March 2021 - 16
PLANSPONSOR - February/March 2021 - 17
PLANSPONSOR - February/March 2021 - 18
PLANSPONSOR - February/March 2021 - 19
PLANSPONSOR - February/March 2021 - 2020 PLANSPONSOR Best in Class 401(k) Plans
PLANSPONSOR - February/March 2021 - 21
PLANSPONSOR - February/March 2021 - 22
PLANSPONSOR - February/March 2021 - 23
PLANSPONSOR - February/March 2021 - 24
PLANSPONSOR - February/March 2021 - 25
PLANSPONSOR - February/March 2021 - Shelter From a Storm
PLANSPONSOR - February/March 2021 - 27
PLANSPONSOR - February/March 2021 - From Volatility to Stability
PLANSPONSOR - February/March 2021 - 29
PLANSPONSOR - February/March 2021 - 30
PLANSPONSOR - February/March 2021 - 31
PLANSPONSOR - February/March 2021 - Are Annuities Good for All?
PLANSPONSOR - February/March 2021 - 33
PLANSPONSOR - February/March 2021 - Regrowth Factor
PLANSPONSOR - February/March 2021 - 35
PLANSPONSOR - February/March 2021 - When 'Herding' Helps
PLANSPONSOR - February/March 2021 - 37
PLANSPONSOR - February/March 2021 - 38
PLANSPONSOR - February/March 2021 - 39
PLANSPONSOR - February/March 2021 - 40
PLANSPONSOR - February/March 2021 - Cover3
PLANSPONSOR - February/March 2021 - Cover4
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