The Frugal Fiduciary Blog

Our Top 10 401k Blogs of 2016: What Topics Were the Most Popular?

Posted by Eric Droblyen on Dec 28, 2016

Happy Holidays from the Frugal Fiduciary! As 2016 comes to a close, we looked back through this year’s blogs to find the most read.  It turns out our most popular blogs related to the following topics:

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Topics: Retirement Plan Types, Fiduciary Responsibiilty, Safe Harbor 401k, 401k fees, Plan Design, 401k Studies

Safe Harbor 401k Plans: Answers To Common Questions

Posted by Eric Droblyen on Jun 15, 2016

“Safe harbor” 401k plans are the most popular type of 401k used by small businesses today. They automatically pass annual ADP/ACP and top heavy tests and allow business owners to maximize contributions to the plan. To achieve safe harbor status, owners are required to make a contribution on behalf of participating employees. For many employers, that trade-off is well worth the cost. Here’s why.

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Topics: Retirement Plan Types, Safe Harbor 401k, Plan Design

When ADP/ACP Testing Fails, 401k Fiduciaries Should Understand Their Options

Posted by Eric Droblyen on Mar 23, 2016

Today, most 401k plans operate on a calendar-based plan year cycle. March 15 was an important date for many of these plans – it was the deadline to make any corrective distributions due to a failed 2015 plan year Average Deferral Percentage (ADP) or Average Contribution Percentage (ACP) test in order to avoid a 10% IRS excise tax.

Failing an ADP/ACP test is not fun. Highly Compensated Employees (HCEs) don’t want their 401k contributions refunded (and out-of-pocket taxes increased), while employers don’t want angry HCEs or the stress of correcting a failed ADP/ACP test by March 15.

Although approximately 30% of 401k plans subject to ADP/ACP testing fail, it’s an outcome most small businesses want to avoid. Below are steps a 401k fiduciary can take to do that.

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Topics: Safe Harbor 401k, 401k testing

The Two-Headed Monster, Fairness and Safe Harbor Plans

Posted by Greg Carpenter on Aug 23, 2013

Image courtesy of Marcus at
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Topics: Safe Harbor 401k, Plan Design

401k Testing and Compliance: Is a Safe Harbor Plan Really Frugal?

Posted by Greg Carpenter on Mar 11, 2013

At Employee Fiduciary, March is a busy month. And no, I’m not talking about putting together our NCAA brackets. Corporate tax returns are due March 15, which means we are helping our clients analyze the deductibility of 2012 contributions. We are busy completing 401k plan testing and compliance.

In a perfect world, all employees would make the maximum contributions to their plan and reap the rewards come retirement time. But for many employees, putting aside money for retirement is difficult - many need their paycheck in its entirety just for everyday living expenses. On the other hand, highly compensated employees have the ability to make larger contributions to the plan. The IRS has rules that limit deductibility of plan contributions. Basically, the wealthy can max out only if the less well compensated make significant contributions as well.

Because of this, we have seen many of our own clients choose to invest in a 401k plan with “safe harbor” provisions. The 401k safe harbor plan allows highly compensated owner-employees to make maximum contributions even if their employees make smaller contributions - or no contribution at all.

With this kind of plan in place, a small business owner doesn’t run the risk of failing a non-discrimination test (safe harbor plans don’t require discrimination testing) and triggering a refund of contributions, which then are taxed as part of personal income.

But what’s the catch? And does it violate the principles of frugality?

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Topics: Safe Harbor 401k, 401k testing, Plan Design

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