• Skip to primary navigation
  • Skip to main content
  • Skip to footer
Employee Benefits Law Group

Employee Benefits Law Group

Guidance. More than just Legal Advice.

  • What We Do
    • ESOPs
    • Mergers & Acquisitions
    • Governmental Employee Benefits
    • Retirement Plans
    • Equity & Executive Compensation
    • Health & Welfare Plans
  • Our Team
  • Resources
  • Contact
Employee Benefits Law Group
Home > Resources > Retirement Plans > SIMPLE 401(k) Versus A Safe Harbor 401(k): The Pros And Cons For Your Small Business

SIMPLE 401(k) Versus A Safe Harbor 401(k): The Pros And Cons For Your Small Business

June 29, 2015 by Ken Ruthenberg

A small employer may find that converting its 401(k) plan into a “SIMPLE” 401(k) plan is preferable to adopting a traditional safe harbor 401(k) plan. What is a SIMPLE 401(k) plan? It is a 401(k) plan under which the employer makes either (i) a nonelective contribution to the plan equal to 2% of compensation for each employee who was eligible to defer under the plan or (ii) a matching contribution equal to 100% of each employee’s deferrals up to 3% of compensation. Such a plan is not necessarily as simple or attractive as it may sound, however, because of complexities and limits such as the following:

  • SIMPLE 401(k) plans are available only to employers with 100 or fewer employees who received at least $5,000 in compensation for the preceding year and that do not maintain another employer-sponsored retirement plan. If an employer adopts a SIMPLE 401(k) plan when it is small and then grows into being a large employer, the rules give the employer a 2-year transition period during which the employer will still be treated as eligible to have the plan.
  • Employee elective deferrals are limited to $13, 000 per year for 2019, which is significantly less than the limit on deferrals under a safe harbor 401(k) plan, which is $19,000 for 2019. Please note that these deferral amounts can and do change annually.
  • Employee age 50 catch-up deferrals in a SIMPLE 401(k) plan are limited to $3,000 for 2019, which is significantly less than the limit on age 50 catch-up deferrals under a safe harbor 401(k) plan in 2019, which $6,000. Again, please note that these deferral amounts can and do change annually.
  • The employer must give the required notice at least 60 days (not just 30 days) before the beginning of the plan year.
  • The employer cannot make a contribution other than the required nonelective or matching contribution.

Filed Under: Retirement Plans Tagged With: Blog

About Ken Ruthenberg

Ken's executive compensation clients appreciate learning the latitude they may have with plans that meet their organizational goals by conditioning rewards to key employees. He helps them implement their creativity while staying within the rules. They also count on his unsurpassed knowledge of the law governing qualified and non-qualified plans, and health and welfare benefits for efficient and effective solutions.
Learn More About Ken

EDITOR’S NOTE: We did the best we could to make sure the information and advice in this article were current as of the date of posting to the web site. Because the laws and the government’s rules are changing all the time, you should check with us if you are unsure whether this material is still current. Of course, none of our articles are meant to serve as specific legal advice to you. If you would like that, please call us at (916) 357-5660.

Recent Retirement Plans Posts

Oops! We’re in a Controlled Group of Companies. What Happens to Our 401(k) Plan Now?!

Retirement Plans – IRS Gives New Options for Voluntary Correction But Also Takes Away

Have You Been Keeping Up with Benefits Law Changes?

Don’t Miss Out! Subscribe

We cover all things employee benefits law.

Privacy Policy

We never share your info.

Let’s Start a Conversation

Have questions about your current benefit plan? Want to know what your benefit plan options are? Whatever your need, we’re here to help. Fill out a hassle-free request form, and one of our team members will follow up to get you on the path to success.

Get In Touch

Footer

Our experienced team guides you in all aspects of ESOPs, M&A due diligence, retirement plans, equity / compensation, and health and welfare benefits.
Sacramento Office
916-357-5660
11231 Gold Express Dr.
Suite 108
Gold River, CA 95670
San Jose Office
408-467-3860
2033 Gateway Place
Suite 500
San Jose, CA 95110
Phoenix Office
2550 W. Union Hills Dr.
Phoenix, AZ 85027
Los Angeles Office
310-571-8896
10880 Wilshire Blvd
Suite 1101
Los Angeles, CA
90024
San Diego Office
916-357-5660
550 West B Street
San Diego, CA 92101
  • LinkedIn
  • Email

Copyright © 2023 Employee Benefits Law Group · Privacy Policy · Site Design by Delos Incorporated