Retirement Plans for SMBs: Safe Harbor Plans

Written by The Peppermint Team

Peppermint was created by a group of business owners, entrepreneurs, and benefits experts who have been on both sides of the table as employees and employers.

March 21, 2022

If you’re here, it means that you’re considering enrolling your business and your employees in retirement plans…and we applaud you for that!

We’re happy to see that you’re considering contributing to helping your employees prepare for their future. And we’re even happier to see that you’re considering peppermint as a pooled employee provider to help you find the right 401k or pooled employer plan for your business.

In this article, we’re going to discuss what a safe harbor plan is and how it can help you with your business’ retirement plans.

What Are Retirement Plans?

Retirement plans like 401k plans or pooled employer plans are typically employer-sponsored plans that allow for employees to start deferring a portion of their salary in order to save for the future. Employers also have the option to contribute to their employees’ retirement plans as a form of benefits in order to improve employee morale and differentiate yourself in the job market.

Retirement plans like the 401k or the recently created pooled employer plans allow for small-medium business owners like you to help your employees prepare for their golden years. In turn, offering these benefits will allow you to develop a more positive company culture, improve your employee engagement and retention, attract top talent, and better your business reputation. On top of those, you also get tax credits and tax advantages that will allow you to get up to $5,500 of tax credits per year for the first three years of your plan.

If you’d like to see a list of benefits that you can get if you set up a retirement plan for your business, you can check out this guide the IRS.

There are many kinds of retirement benefits ranging from IRAs to 401ks to pooled employer plans but we won’t elaborate on those for now. For this article we will focus on a specific type of plan available with 401ks and PEPs called the safe harbor plans.

What is a Safe Harbor Plan?

A safe harbor plan is a type of retirement plan that helps business owners like you adhere to the IRS requirements and policies for non-discrimination, and also exempts you from any required compliance testing. It’s the plan for you if you want to avoid the administrative liabilities that come with traditional or more flexible plans.

Safe harbor plans allow your highly-compensated employees to maximize their deferrals while reducing top-heavy plans, allowing you to provide benefits for all. This allows for a 401k or pooled employee plan that benefits all workers, and not just key company employees.

However, this exemption from admin work, liabilities, and comprehensive testing comes with a price. If you choose to go with a safe harbor plan, you’re also required to undergo mandatory contributions to your employees’ retirement plans.

What Are Mandatory Contributions?

As the term states, mandatory contributions are the contributions you, the employer, are required to make into your employees’ retirement accounts. The amount of mandatory contributions to your employees’ accounts depends on your plan and capacity.

Here at peppermint, we have two kinds of safe harbor plans, each with different contribution percentages depending on your company’s financial capabilities and how much you want to contribute to your employees’ retirement plans.

We want to make sure that you still have options while being able to provide the best kind of benefits for all.

Dollar for Dollar             Employer matches 100% on the first 4% of deferred compensation
Fixed 3% Employers put in 3% of employee’s compensation, even if the employee does not contribute

Note that as part of the safe harbor rules, mandatory contributions are also immediately vested, which means that employees keep 100% of the funds you’ve contributed to their retirement plans regardless of tenure. 

Another thing that you can keep in mind when it comes to contributions is that your contributions to your employees’ retirement plans are tax deductible, so not only are you helping your employee and improving their morale, you’re also saving on taxes! It’s a win-win.

Why Safe Harbor Plans are the Better Choice

As a small-medium business owner, we understand that you may not have the capabilities or resources to undergo compliance testing and other mandatory tests required by the IRS. These tests make sure that you’re not being discriminatory or favoring only the highly-compensated, key employees in the company.

Now, if you end up failing one of the discrimination tests, you’ll be asked to do adjustments, which can involve refunding highly-compensated employee contributions; making qualified non-elective employer contributions; or a combination of the two. These corrections can end up costing you and your company more money since:

  1. refunds made to employees are taxable and/or
  2. if you end up failing a top-heavy assessment, you’ll be asked to contribute more to your non-highly compensated employees’ plans

Safe harbor 401k plans take the worry and frustration out of compliance and nondiscrimination testing. This allows you to put in precious time and resources into growing your business while allowing employees to focus on growing their retirement savings. 

While a safe harbor plan can increase your payroll by up to 3%, if all employees decide to participate, it can directly boost worker morale, improve employee retention, and give your business a reputation boost. These “hidden” benefits will surely outweigh the payroll increase, as the cost of replacing a resigned employee can cost from 50% – 150% of their salary, depending on the seniority.

How Can Peppermint Help You?

This article isn’t everything you need to know about retirement benefits, but it is a first step to guide you on your journey as you decide the appropriate 401k or pooled employee plan for your business.

Safe harbor plans have strict deadlines and have a lot of administrative work that may need specialized attention, however, as a pooled plan provider, we’ll make sure to take care of all the heavy lifting for you.

Here at peppermint, we are business owners, entrepreneurs, and benefits experts who are here to help small-medium business owners like yourself find the perfect pooled employer plan for your business and your employees. We work with some of the best-known and most trusted names in the retirement planning industry to ensure nothing but the best service and options for small-medium business owners like you.

If you’re interested to learn more about peppermint or see how we can help you help your employees plan for their future, leave your details over at our contact form or contact us at, and one of our retirement plans specialists will get back to you with recommendations that are suited for your business.

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