In addition to 40I(k) contributions, employers like to incentivize their employees by adding Safe Harbor employer contributions. Traditional 40I(k) plans are subject to annual non-discrimination testing to ensure that benefits are not disproportionately favoring highly compensated employees. A safe harbor contribution satisfies this testing requirement and, therefore, is exempt from ADP/ACP non-discrimination testing, which allows the plan to avoid certain contribution restrictions for owners and highly compensated employees.

Depending on the employee demographics and budget, a safe harbor option is selected from the various types of safe harbor contributions available. The two most widely used safe harbor options are: the 3% Safe Harbor Non-Elective, which is provided to all employees, irrespective of their participation in the 40l(k). The other is a Safe Harbor Match, , where the employer matches dollar-for-dollar deferral up to 4% of salary. In a competitive job market, employers may use a Safe Harbor contribution as part of their benefits package to stand out among competitors. A generous retirement plan with a Safe Harbor feature can be a valuable recruitment tool and an attractive incentive for retaining existing top talent employees.