Understanding The Advantages of

Safe Harbor 401(k) Plansversus SIMPLEs

Presented by:

Mark M. GutrichPresident & CEO

ePlan Services, Inc.

What is a Traditional 401k?BASICS

• Plan Adoption Agreement• Flexible Eligibility:

– 18 to 21 Years of Age– Worked 1,000 hours/year

• Optional Contributions:– Deferral Matching– Profit Sharing

• Elective Deferrals:– 100% of Compensation– Up to $15,500/year– $5,000 “Catch-Up” if 50+

PROS & CONS

PROS:• Easy to Set-Up & Administer• No Mandatory Contributions• Permitted Disparity Designs• Optional Vesting Schedules• Optional ROTH Contributions• Optional Loan FeatureCONS:• Annual Tax Filings• Annual Administration Fees• Annual Discrimination Tests

- 1 -

What is a Safe Harbor 401k?BASICS

• Plan Adoption Agreement• Flexible Eligibility:

– 18 to 21 Years of Age– Worked 1,000 hours/year

• Mandatory Contributions:– 3% of Annual Compensation

- OR -

– 3.5% to 4% Match on Deferrals

• Elective Deferrals:– 100% of Compensation– Up to $15,500/year– $5,000 “Catch-Up” if 50+

PROS & CONS

PROS:• Easy to Set-Up & Administer• No Discrimination Testing• Optional Profit Sharing• Optional Vesting Schedules*• Optional ROTH Contributions• Optional Loan FeatureCONS:• Annual Tax Filings• Annual Administration Fees• Mandatory ER Contributions

- 2 -

How Can They Be Structured?NON-ELECTIVE SAFE HARBOR

• Mandatory Contributions:– Flat 3% of Compensation– Regardless of Participation

• Owner/HCE Deferrals:– 100% of Compensation– Up to $15,500/year– $5,000 “Catch-Up” if 50+

• Can Wait To Notify:– Determined Annually– 30 Days Before Year-End

SAFE HARBOR MATCH

• Matching Contributions:– 100% up to 3% Comp– 50% on next 2% Comp

• Owner/HCE Deferrals:– 100% of Compensation– Up to $15,500/year– $5,000 “Catch-Up” if 50+

• Must Pre-Notify:– Determined Annually– 30 Days Before Plan Year

- 3 -

What’s The Difference?

SH NEC SUMMARY: % CONTRIB

Owners $ 9,000 46%HCEs 3,150 16%NHCEs 7,500 38%TOTAL $19,650

(Immediately Vested)

SH MATCH SUMMARY: % CONTRIB

Owners $12,00053%

HCEs 4,20019%

NHCEs 6,40028%

TOTAL $22,600(Immediately Vested)

- 4 -

NON-ELECTIVE SAFE HARBOR SAFE HARBOR MATCH

EMPLOYEES: AVG DEFRRAL ANNUAL COMP

2 Owners Max $300,000

1 Highly Compensated Employees (HCEs) 10% 105,000

4 Non-HCEs (Participate) 5% 160,000

3 Non-HCEs (Don’t Participate) 0% 90,000

TOTAL PAYROLL $655,000

What If Excluded Owners/HCEs?

SH NEC SUMMARY:

Owners - $ - 0 -HCEs - - 0 -NHCEs 3% 7,500TOTAL 1.1% $ 7,500

(Immediately Vested)

SH MATCH SUMMARY:

Owners - $ - 0 -HCEs - - 0 -NHCEs 2.6% 6,400TOTAL 1.0% $ 6,400

(Immediately Vested)

- 5 -

NON-ELECTIVE SAFE HARBOR SAFE HARBOR MATCH

EMPLOYEES: AVG DEFRRAL ANNUAL COMP

2 Owners Max $300,000

1 Highly Compensated Employees (HCEs) 10% 105,000

4 Non-HCEs (Participate) 5% 160,000

3 Non-HCEs (Don’t Participate) 0% 90,000

TOTAL PAYROLL $655,000

SIMPLE v. SH401kSIMPLE

• No Administrative Fees• No Annual Tax Filings• No Discrimination Testing• Must Include ALL Employees• Max Personal Deferrals:

– 100% Compensation– Up to $10,500– $2,500 “Catch-Up” if 50+

• Mandatory Contributions:– 2% of Annual Compensation

- OR -– 3% Match on Deferrals

• 100% Immediately Vested

SAFE HARBOR 401(K)

• Low Administrative Fees• Easy Annual Tax Filings• No Discrimination Testing• May Exclude Employees• Max Personal Deferrals:

– 100% Compensation– Up to $15,500– $5,000 “Catch-Up” if 50+

• Mandatory Contributions:– 3% of Annual Compensation

- OR –– 4% Match on Deferrals

• 100% Immediately Vested- 6 -

How Do They Compare?

- 7 -

SH MATCH SUMMARY:

Owners 3% $ 9,000HCEs 3% 3,150NHCEs 1.9% 4,800TOTAL 2.6% $16,950

(Immediately Vested)

SH MATCH SUMMARY:

Owners - $ - 0 -HCEs - - 0 -NHCEs 2.6% 6,400TOTAL 1.0% $ 6,400

(Immediately Vested)

SIMPLE MATCH SAFE HARBOR MATCH 401(K)

EMPLOYEES: AVG DEFRRAL ANNUAL COMP

2 Owners Max $300,000

1 Highly Compensated Employees (HCEs) 10% 105,000

4 Non-HCEs (Participate) 5% 160,000

3 Non-HCEs (Don’t Participate) 0% 90,000

TOTAL PAYROLL $655,000

Who Gets The Benefit?SIMPLE MATCH SAFE HARBOR MATCH 401(K)

Employee Deferral Match Total Deferral Match Total

Owner #1 $10,500 4,500 $15,000 $15,500 - 0 - $15,500

Owner #2 $10,500 4,500 $15,000 $15,500 - 0 - $15,500

HCE $10,500 3,150 $13,150 $10,500 - 0 - $10,500

Non-HCE #1 $ 2,500 1,500 $ 4,000 $ 2,500 2,000 $ 4,500

Non-HCE #2 $ 2,500 1,500 $ 4,000 $ 2,500 2,000 $ 4,500

Non-HCE #3 $ 1,500 900 $ 2,400 $ 1,500 1,200 $ 3,700

Non-HCE #4 $ 1,500 900 $ 2,400 $ 1,500 1,200 $ 3,700

Non-HCE #5 $ 0 - 0 - $ 0

$ 0

- 0 - $ 0

Non-HCE #6 $ 0 - 0 - $ 0

$ 0

- 0 - $ 0

Non-HCE #7 $ 0 - 0 - $ 0

$ 0

- 0 - $ 0

ER COST $16,950 $6,400

- 8 -

Isn’t There A Vesting Version?AUTOMATIC ENROLLMENT SAFE HARBOR 401(K)

• Enroll Every Employee:– Minimum 3% Deferral– Employee May Opt Out

• Automatic Increases:– Scheduled Annual Increases– Scale up to 6% over 3 yrs

• Mandatory Contributions:– 100% of first 1% Deferral– 50% of next 5% Deferral

• Available Vesting Schedules:– Immediate– 50% per Year– 2-Year Cliff

BENEFITS

• Creates Retention Plan• Forfeit Contributions:

– Pay Annual Plan Expenses– Offset Future Contributions– Distribute to “Vested” EEs

- 9 -

How Does It Work?

• Enroll Every Employee:– 3% Deferral– 1% Escalator/Year

• Offer Employees Opt-Out

• Start Making Contributions

AUTOENROLL SH MATCH SUMMARY:

Owners - $ - 0 -HCEs - - 0 -NHCEs 1.9% 4,800TOTAL 0.7% $ 4,800

(Vested Over 2 Years!)

- 10 -

EMPLOYEES: AVG DEFRRAL ANNUAL COMP

2 Owners Max $300,000

1 Highly Compensated Employees (HCEs) 10% 105,000

4 Non-HCEs (Stay In) 5% 160,000

3 Non-HCEs (Opt Out) 0% 90,000

TOTAL PAYROLL $655,000

SIMPLE v. AE401kSIMPLE

• No Administrative Fees• No Annual Tax Filings• No Discrimination Testing• Must Include ALL Employees• Max Personal Deferrals:

– 100% Compensation– Up to $10,500– $2,500 “Catch-Up” if 50+

• Mandatory Contributions:– 2% of Annual Compensation

- OR -– 3% Match on Deferrals

• 100% Immediately Vested

AUTOENROLL 401(K)

• Low Administrative Fees• Easy Annual Tax Filings• No Discrimination Testing• May Exclude Employees• Max Personal Deferrals:

– 100% Compensation– Up to $15,500– $5,000 “Catch-Up” if 50+

• Mandatory Contributions:– 3% of Annual Compensation

- OR -– 3.5% Match on Deferrals

• Up to 2 yr Vesting Schedule- 11 -

How Do They Compare?

- 12 -

SH MATCH SUMMARY:

Owners 3% $ 9,000HCEs 3% 3,150NHCEs 1.9% 4,800TOTAL 2.6% $16,950

(Immediately Vested)

SH MATCH SUMMARY:

Owners - $ - 0 -HCEs - - 0 -NHCEs 1.9% 4,800TOTAL 0.7% $ 4,800

(Vested Over 2 Years!)

SIMPLE MATCH AUTOENROLL SH MATCH 401(K)

EMPLOYEES: AVG DEFRRAL ANNUAL COMP

2 Owners Max $300,000

1 Highly Compensated Employees (HCEs) 10% 105,000

4 Non-HCEs (Participate/Stay In) 5% 160,000

3 Non-HCEs (Don’t Participate/Opt Out) 0% 90,000

TOTAL PAYROLL $655,000

Who Gets The Benefit?SIMPLE MATCH PLAN AUTOENROLL SH MATCH

401(K)Employee Deferral Match Total Deferral Match Total

Owner #1 $10,500 4,500 $15,000 $15,500 - 0 - $15,500

Owner #2 $10,500 4,500 $15,000 $15,500 - 0 - $15,500

HCE $10,500 3,150 $13,150 $10,500 - 0 - $10,500

Non-HCE #1 $ 2,500 1,500 $ 4,000 $ 2,500 1,500 $ 4,000

Non-HCE #2 $ 2,500 1,500 $ 4,000 $ 2,500 1,500 $ 4,000

Non-HCE #3 $ 1,500 900 $ 2,400 $ 1,500 900 $ 2,400

Non-HCE #4 $ 1,500 900 $ 2,400 $ 1,500 900 $ 2,400

Non-HCE #5 $ 0 - 0 - $ 0

$ 0

- 0 - $ 0

Non-HCE #6 $ 0 - 0 - $ 0

$ 0

- 0 - $ 0

Non-HCE #7 $ 0 - 0 - $ 0

$ 0

- 0 - $ 0

ER COST $16,950 $4,800

- 13 -

How Do I Decide?

OBJECTIVE/DECISION

• Do Owners Want to Defer:– $10,500/year– $15,500/year

• Does Employer Want:– Give Employees Money– Offer Savings Incentives

• Does Employer Want:– Unconditional Benefit– Retention Benefit

PLAN TYPE

SIMPLE401(k)

NEC SH 401(k) or SIMPLEMatch SH 401(k) or SIMPLE

SH 401(k) or SIMPLEAutoEnroll SH Match

401(k)

- 14 -

Dates To Remember

• Notify Re: SH Match December 1st

(Previous Year)

• Convert SIMPLE to SH401k January 1st

(Current Year)

• Determine SH NEC November 31st

(Current Year)

• Establish New SH401k October 1st

(Current Year)

- 15 -

Questions & Answers