More and more employers are deciding to adopt the 401(k) safe harbor feature added by SBJPA '96 so that they can eliminate ADP testing and for overall more efficient retirement planning.

You may recall that the safe harbor 401(k) rules permit a plan to forego ADP testing if it makes an employer contribution to all NHCE's of at least 3 percent of pay, or makes a matching contribution of 100 percent of the first 3 percent employee deferral, plus 50 percent of the next 2 percent of deferral.

Many small and medium-size companies are finding that the safe harbor contributions, which can also count toward top-heavy and other non-discrimination requirements (e.g., new comparability), become an important cornerstone in the re-design of their firm's retirement plan(s), providing for maximum utilization of the tax-favored benefits for the business owners.

NRS believes that all employers need to review the interplay of these various provisions, especially in light of EGTRRA's increased limits. Please discuss this matter with you NRS Account Manager as soon as possible if you sense that your plan may be a candidate for such enhancements.