Ubiquity Retirement + Savings: [Webinar] Safe Harbor 401(k)

Updated : Oct 26, 2019 in Articles

Ubiquity Retirement + Savings: [Webinar] Safe Harbor 401(k)


Hello everyone thanks so much for
joining us today. We have a very relevant and timely topic that we’re going to be
discussing namely safe harbor 401k. Making you the expert. So again we are
Ubiquity Retirement and Savings my name is Chris Jasinski and this is what we’ll
be talking about. So really getting into Safe Harbor and talking about how it’s
relevant for you is the adviser to your potential for 401k clients. So without
further ado let’s hop right into the agenda. We’re going to talk a little bit
about what is Safe Harbor, how it works you know why it’s important. And then
obviously we’ll be reviewing some of the key advantages to the participant in the
plan sponsor and then you as their advisor. So really going over what are
some of the key reasons why people get Safe Harbor to begin with. We’ll wrap up
with some key deadlines for 2018. I’ll give you a brief overview of Ubiquity and some next steps for contact information on how you can speak
with this further. So many of you probably already have a
sense of what a Safe Harbor match is in a 401k plan, but for those of you who don’t
a Safe Harbor contribution is a sort of contribution that’s made by the employer
into a participants 401k account. This amount is predetermined normally
represented as a percentage of the participants salary. The most common form
of a Safe Harbor contribution is a match meaning the employer is only responsible
for making a contribution when the employee does so. And we can see right
here in the first section two common formulas that employers often choose
from to determine their 401k plan Safe Harbor matching contribution whether
it’s a dollar for dollar match on the employee deferrals up to 4% of their
annual income or another match which is the dollar for dollar match up to 3% and
then $0.50 a dollar on the next 2% for the employees salary. You’ll also see
here that another option is what’s called a non elective contribution and
that’s when a plan sponsor decides that they want to make a Safe Harbor
contribution to the employees account regardless of whether or not the
employee actually does so. So this brings us into a critical
question because Safe Harbor contributions are requirement for a 401k
plan why would a plan sponsor include a provision for a Safe Harbor match to begin
with. This is an important point to address because it opens up the
broader topic of how everyone benefits from a Safe Harbor. So let’s start off
with the employee I think the advantages here are obvious.
Number one it’s essentially free money that the employees’ employer is
depositing into their retirement account. Secondly, it can it can incentivize the
employee to increase their savings rate. So it let’s say I’m an employee in a 401(k)
plan and I’m inclined to contribute only 2% of my salary to my 401(K) but I
know that my employer will match up to 4%. It’s much more likely that I’ll feel
compelled to elevate my own contribution amount. One other key unmentioned advantage for the
employee is that these employer contributions are immediately invested.
This means that as an employee I’m always entitled to my employers
contributions immediately and that they can’t subject the receipt of this money
to a vesting schedule. Now a vesting schedule for those of you don’t know
it’s pretty common with profit sharing in 401k plans where the employer can
require that the employee works at the company for a certain period of time be
it one two or three years before they’re eligible to receive those profit-sharing
contributions. With a Safe Harbor match the employer isn’t allowed to do so and
the employee gets access to that Safe Harbor money right away. So let’s
talk a little bit about as well the benefits to the employer and for you as
the advisor and there tends to be a bit of overlap here so I’ll talk about them
in conjunction. The advantages for the employer that might not be as obvious
but they’re pretty critical to know especially when you’re having these
initial conversations with them. Firstly, when an employer has a Safe Harbor in
their 401k plan the most critical advantage is that is that they are
automatically exempted from annual compliance testing that’s required for
all non safe harbor 401k plans. This testing is essentially a government
mandated review of the plan whose purpose is to ensure that the 401k plan
itself isn’t overly advantageous to highly compensated employees at the
company. A highly compensated employee is generally someone who owns or has owned
more than five percent of the interest business at any time during the year or
preceding year but also another definition of a highly compensated
employee is an employee who made more than one hundred and twenty thousand
dollars in the previous year in their income. So this is a key a key point to
know for testing season because if the 401k plan doesn’t have a Safe Harbor and
it goes through that annual testing like Almonte Harbour 401 k’s are required to
do. And those test results find that a given highly compensated employees
contributions for the year exceeded 2% of the average contribution rate of all
non highly compensated employees then that highly compensated employee who
over contributed will have to take a mandatory distribution from their
account and that money of theirs will no longer be accruing in their retirement
account. So this is pretty critical because if I’m a highly compensated
employee and let’s say I want to contribute 10% of my salary to my 401k
plan. Well if my employer decides not to have a Safe Harbor provision that means
plan will go through testing and if for example after that testing is conducted
and it found that all of the non highly compensated employees only on average
contributed 2% of their salary well my original 10% as a highly compensated employee
will be out of proportion and considered overly advantageous and I’ll have to
take a kickback all the way down to 4%. In other words getting it back in line
with that 2% difference of the non highly compensated employees. So suffice it to
say this process can be very frustrating for a highly compensated employee and
the employer and you are sure to hear about it if they hadn’t expected it. So
again having a Safe Harbor prevents this testing from even needing to occur
really letting you and the employer breathe easy when it comes time to
conduct that testing. Another key advantage for the employer is that any
contributions they make on behalf of employees can actually be deducted from
their corporate taxes so this is an additional bonus for the employer if
they’re also a participant in the plan. Now they get to reduce their own
personal tax liability with their own pre-tax contributions they get to match
those funds from their Safe Harbor match and they get to use to use that figure from
that Safe Harbor match for their own account to write-off on their corporate
taxes. So although we already briefly touched
on it a few moments ago another key piece for to know for the advisor is
that it really adds the additional peace of mind for you saving you precious time
and resources whether it’s coordinating back and forth with an employer or a
highly compensated employees as to what’s going to be happening with their
money by talking with the provider as well. This can be a very complicated and
arduous process. That generally you as the advisor want to avoid to save you
time and stress. So again this is one of the key reasons why Safe Harbor
can be very advantageous for you as the advisor. And then you know lastly one
point that often gets overlooked is that when you have a Safe Harbor match more
employees are going to be saving and those savings rates are going to be
accumulating at a much faster rate meaning it’s ultimately going to boost
the plan assets for you and your bottom line. So let’s move on to some key deadlines
for establishing a new Safe Harbor plan in 2018. This is very important to know
because we’re coming up on it and if your client really wants to avoid
discrimination testing in 2019 then they need to establish that Safe Harbor plan
and distribute what’s called the Safe Harbor notice which he typically
provides to their employees no later than October 1st 2018. In other words if
your client sets up their 401k plan on October 7 October 2nd their plan cannot
be safe harbor for the remainder of 2018. Even if they act even if they plan to
add safe harbor on January 1st 2019 they will still be subject to compliance
testing for the three months of 2018 where their plan was not covered by Safe
Harbor. Since we at Ubiquity primarily deal with start-up 401k plans we tend to
get a major influx of new clients close to the new Safe Harbor deadline so we
strongly recommend that your client establishes a plan with us no later than
September 21st. But of course never too early to begin these conversations with
our plan design sales team who is here to help you in your client through the
evaluation process. Now there are a number of different
deadlines for existing 401k plans who are coming over to Ubiquity that might
want to add or modify their Safe Harbor if they decide to come over to our
low-cost platform. A good rule of thumb is to get them talking with our team no
later than late August or early September not just to account for the
Safe Harbor notices but also to keep in mind that it can take time to move
assets from one provider to another. And for us to make sure we’re getting their
plant provisions right. So now moving on to just really briefly
a little bit about Ubiquity really we’ve been here since 1999 focusing on helping
small businesses establish low-cost digital first retirement plans and we’ve
served over well over 6,000 clients 65,000 participants and have overseen
over 2.2 billion dollars in assets. We really pride ourselves on competitive
and transparent flat fee pricing for our clients and high-quality service for all
parties whether it’s the participant the plan sponsor or you as the advisor.
We’re also what’s known as an open architecture record keeper allowing you
and your clients investment flexibility though that said if you want to
streamline things and you want someone else to be able to handle the bulk of
the responsibility for the investment management we also provide you and your
clients access to a handful of 3:38 fiduciary investment managers. And that
really allows you to streamline things for your micro Market 401k offering but
also more critically helping you and your client mitigate fiduciary liability. So that concludes today’s presentation
please remember that it’s never too early to speak with our plan consultant
team to review your client situation. You can see my contact information here. If
you have any questions for me personally or if you’d like me to introduce you to
my retirement plan consultant team directly. Thanks so much and have a great day.

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