Safe Harbor Plan Option allowed by the PPA

The PPA waives the nondiscrimination testing requirements for plan sponsor who have a Qualified Automatic Contribution Arrangement (QACA).  These are often referred to as safe harbor automatic enrollment arrangements.  This requires meeting the EACA requirements and complying with two additional requirements.

The initial automatic enrollment  amount much be at least 3% (but not more that 10%) of pay and you must annually increase this amount to 4% the second year, 5% the third year and 6% the forth year and beyond.  If you start with 6% in the fist year and make no increases that also satisfies the requirements.

The employer must fund a “safe harbor” contribution which much be 100% vested after two years of service.

The minimum employer safe harbor contribution options are:

Matching contributions:  100% of the first 1% deferred and 50% of the next 5% deferred for a maximum of 3.5% of pay or:

Non-elective contributions of 3% of pay for all eligible employees

The QACA provisions must be in place before the beginning of the plan year and must stay in place for the entire year.