Small Business 401(k) Retirement Plans - Safe Harbor Match vs. Safe Harbor Non-Elective

401(k) | Small Business Planning

 Matt Baisden By: Matt Baisden

For a myriad of reasons – from automatically passing ADP testing, helping with Top-Heavy failures, or owners saving $60,000+, many businesses choose to use a Safe Harbor formula in their 401(k) retirement plan. Let’s find out what the Safe Harbor formulas are and why you may choose one over the other.

Safe Harbor Formulas

As I’ve written about before, a Safe Harbor formula can solve many issues for a company’s 401(k) retirement plan. There are essentially two Safe Harbor formulas a company can choose from.

Safe Harbor Non-Elective:

This formula gives a 3% contribution to all eligible employees. Regardless of how much they save. If an employee saves 10% of their salary into the 401(k) retirement plan, they receive a 3% contribution. If an employee saves nothing into their 401(k), they also receive 3%.

Safe Harbor Match:

The standard Safe Harbor Match formula is a 100% match up to 3%, then a 50% match on savings between 3% and 5%. If an employee saves 4%, they receive a 3.5% match. If an employee saves 5%, they receive a 4% match which is the maximum.

There are other Safe Harbor Match formula options, though this is the lowest cost option.

Which formula should I use?

Ultimately this comes down to your company’s makeup and the owner’s goal for the 401(k) retirement plan. For many small & medium size businesses the Safe Harbor Non-Elective choice is the cheapest option. For companies with high participation rates a match formula would cost slightly more.

A Safe Harbor Non-Elective formula also helps significantly if the business owner is trying to use profit-sharing to save $60,000+ into the 401(k) every year. The reason is based on Department of Labor discrimination testing regulations – which I am always happy to discuss in detail!

Safe Harbor Match formulas make sense for companies that are likely to have low participation rates. If you do not plan to use profit sharing, a match may also be better from the company’s benefits perspective. A match requires a commitment from the employee to save into the 401(k) retirement plan, which makes sense for many business owners.

We’ve helped a lot of business owners review this for their company - I welcome the opportunity to determine if we can help you.

Next Steps:

Click the download button on the image below to receive our Free Guide to Find the Right Retirement Plan For Your Small Business to gain an understanding of the different retirement plan options available that meet your personal and business goals.

If you want to review the specific details of your company’s 401(K) contribution plans, our team can prepare an analysis for you. Contact me at, call me at 314-392-4630 or schedule a meeting with me here.

retirement plans for small businesses


This material has been prepared for informational purposes only and should not be used as investment, tax, legal or accounting advice. All investing involves risk. Past performance is no guarantee of future results. Diversification does not ensure a profit or guarantee against a loss. You should consult your own tax, legal and accounting advisors.

Related Posts

With four years’ of portfolio management experience under his belt, Matt came to Plancorp in 2016 to join our Retirement Plan Advisors practice. He loves helping business owners build retirement plans that make their companies stronger and give owners the ability to retire when they want. More »