Establishing new Safe Harbors for the current year has been updated in a significant way under the SECURE Act. We’ve outlined the deadlines below. As a reminder, this means that a Plan Document must be drafted, signed and plan accounts open to meet the deadline as shown below:
10/1/2020: Any type of Safe Harbor plan for new 401(k) plans (very commonly used for Safe Harbor matches).
Between 10/1-12/1/2020: Can still establish a Safe Harbor non-elective plan at 3% of pay to eligible Non-Highly Compensated Employees (NHCEs) at least for an existing plan. This is brand new from SECURE!
Between 12/1/2020-3/15/2021: Can still establish a Safe Harbor non-elective plan at 4% of pay for an existing plan! This, too, is brand new from SECURE! This could be a very useful tool if there is a large ADP/ACP failure.
Between now and Corporate Tax Filing during 2021: Establish a Profit Sharing only, Defined Benefit or Cash Balance plan which used to need to be at least signed by 12/31 of a given year if calendar year. For example, a Plan Sponsor taxed as an S-Corporation could, in theory, establish a Cash Balance/PS combo on 9/15/2021 and fund their contributions deductible for 2020!
In our thoughts, the extended deadlines for establishing these plans is a true game changer for what a prospective Plan Sponsor has available to them!