Traditional vs. QACA Safe Harbor 401(k) Plans: How to Choose the Best Option for Your Business
Plan Design A safe harbor 401(k) plan helps small businesses automatically pass annual nondiscrimination tests—avoiding costly issues like ADP/ACP test refunds or top heavy contributions. But not all safe harbor plans are created equal. Safe harbor 401(k) plans come in two basic types today - traditional and Qualified Automatic Contribution Arrangement (QACA) . Both can automatically satisfy IRS nondiscrimination testing but differ in how they approach employee participation, employer contributions, and administrative requirements. Let’s break down how traditional and QACA safe harbor plans compare—and how recent retirement plan legislation like SECURE 1.0 and SECURE 2.0 might impact your decision when choosing the best safe harbor plan for your business. What Is a Traditional Safe Harbor 401(k) Plan? A traditional safe harbor 401(k) plan requires employers to make one of the following contributions to eligible employees: Basi...