Global Financial Services Group, Inc. - Corporate Insurance and Employee Benefit Specialists

Safe Harbor 401(k) Plans
A variation of the conventional 401(k) Plan, that allows plan sponsors to fundamentally "buy" their way out of the Actual Deferred Percentage (ADP), Actual Contribution Percentage (ACP) and top-heavy tests, is the Safe Harbor 401(k) Plan.

To take full advantage of the Safe Harbor provision of the 401(k) plan, an employer must make one of the non-discretionary contributions to the plan each year shown in the table below. To insure full compliance, the employer is also required to make either of these contributions 100% fully vested.

SAFE HARBOR 401(K) PLAN
EMPLOYER COMPLIANCE CRITERIA

EMPLOYER MATCH

Employers must match ALL OF THE FIRST THREE PERCENT (3%) of compensation deferral into the plan, plus HALF OF THE NEXT TWO PERCENT (2%) of compensation deferral. Accordingly, the maximum potential contribution for an employee is four percent (4%) of compensation. (100% x 3% + 50% x 2%). Employers may use alternative match formulas if the total match benefit is equivalent to the "Safe Harbor" formula. The employer may not require any "hours of service" condition or employment on the last day of the plan year to receive a contribution. To insure full compliance, the employer is also required to make these contributions 100% fully vested.

- - -OR - - -

EMPLOYER PROFIT SHARING CONTRIBUTION

Employers must contribute at least three percent (3%) of compensation to the plan for all eligible non-highly compensated employees. The employer must make this contribution whether or not the employees have deferred compensation into the plan. Again, the employer may not require any "hours of service" condition or employment on the last day of the plan year to receive a contribution. To insure full compliance, the employer is also required to make these contributions 100% fully vested.

As an employer, if you anticipate or if you are experiencing high levels of participation in your 401(k) plan, it may be better for your company to make an across the board three percent (3%) contribution rather than provide a minimum employer match as shown above.

SAFE HARBOR 401(K)
PLAN OVERVIEW
PRIMARY BENEFITS
Allows employee deferral
Allows highly compensated employees to make maximum contributions ($11,000 in 2002 / $12,000 in 2003) with no restrictions
Avoids non-discrimination testing on deferrals and match
Some degree of design flexibility
May apply eligibility criteria
Loans available
Can have vesting on other contributions above the 3%

Safe Harbor 401(k)
Detailed Summary
Plan Size
Businesses of all sizes

Plan Adoption And Contribution Deadlines
Typically, plans are administered on a calendar-year basis and new plans must be set up and adopted by plan year end.
Employer matching contributions or non-elective contributions can be accrued but must be made by employer's tax-filing deadline, including extensions.
Employee pre-tax salary deferrals must be deposited by 15th business day following the month of deferral, or sooner if administratively feasible.

Employee Eligibility Requirements
Flexible, however employees who are at least 21 years old with 1,000 hours of service for at least one year are generally eligible to participate in the plan.
Employer may set less restrictive eligibility standards.

Maximum Annual Contributions
Employees can make pre-tax salary deferrals up to ninety five percent (95%) of annual compensation or $11,000 (in 2002) which ever is less.
Employer must provide a dollar-for-dollar match on employee deferrals up to 3% of compensation, and a 50% match on the next 2% of compensation deferred (limited to $200,000) which may not be reduced.
Instead of matching contributions, employer may make a non-elective contribution of 3% of compensation (limited to $200,000) for each eligible employee.
Additional employer match or non-elective contributions may be made.
Total contributions limited to 10% of compensation, or $40,000, which ever is less.

Vesting
Participants are always 100% vested in required employer Contributions under Safe Harbor.
Additional contributions may be subject to vesting schedule.

Withdrawals And Loans
Upon withdrawal, money is taxed as ordinary income and subject to a 10% tax penalty, unless taken after the attainment of age 59.5 or because of death or disability.
Availability of hardship withdrawals.

Administration And Reporting
Employees must be notified the plan's intention to use the Safe Harbor thirty (30) days before the beginning of a plan year.
415 testing and loan tracking required
Required filing of IRS Form 5500
Requires a Summary Plan Description and a Summary Annual Report

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Global Finanical Services Group
4 E. Piper Suite D
Prospect Heights, IL 60070
847-368-8686 Main
847-368-0715 Fax
877-8GLOBAL Toll Free