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Plan Design Considerations

There are several factors to take into account when considering your plan options. 

  • Participation criteria: In most cases, you must offer participation if the employee at least 21 or has worked for you for more than a year. 
  • Contribution allocation formulas: Some plans give equal allocation to all employees participating in the plan, while other plans will allow for higher allocations for the owner and other senior management employees. 
  • Potential use of “Safe Harbor” design options: Safe harbor designs will allow you to avoid certain types of compliance testing. Generally, safe harbor design includes: 
    • Nonelective contributions: The employer makes nonelective contributions on behalf of each employee, regardless of whether the employee is participating in the plan. 
    • Matching contributions: Generally, the employer makes matching contributions of 3% of employees' eligible conributions.
    • Automatic enrollment: This design includes an auto enrollment feature for new eligible employees in which a predetermined amount of their salary is deferred to the plan unless they opt out.