Starter 401(k) and Safe Harbor 403(b) plans for employers with no retirement plan

Apr 21, 2023 | 2024, Retirement Plan Law

This change permits an employer that does not sponsor a retirement plan to offer a starter 401(k) plan or safe harbor 403(b) plan. A starter plan would generally require that all employees be automatically enrolled in the plan at a 3% to 15% of compensation deferral rate. The limit on annual deferrals would be the same as the IRA contribution limit, which for 2023 is $6,500 with an additional $1,000 in catch-up contributions beginning at age 50. This plan is not required to perform Actual Deferral Percentage (ADP) testing and Top Heavy rules do not apply.

The safe harbor 403(b) rules are similar to the starter 401(k) plan rules, but ADP testing does not apply to 403(b) plans due to the universal availability rules. Top-heavy rules do not apply as well. We see little benefit to a safe harbor 403(b) plan for these reasons.


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