Why would a practice provide a Safe Harbor 401k vs another kind?

[Riverman22]

From what I understand they make a 3% contribution to all eligible employees regardless of their own contributions. I also believe that money is 100% vested right away. What benefits do the owners gain from doing this that I am unaware of?

[spiritrider]

A safe harbor 401k plan eliminates the need to do actual deferral percentage (ADP), actual contribution percentage (ACP) and top heavy testing and dealing with the corrective measure necessary with testing failures. Which typically limits the employers deferrals and employer contributions of highly compensated employees (HCEs).

To be a safe harbor 401k plan the employer can either provide a minimum 3% non-elective contribution or a minimum match of 100% on the 1st 3% of compensation and 50% on the next 2% of compensation. Regardless of the choice of employer contribution l, it must be 100% vested.

While some employers do not want to make any employer contributions. Many will make employer contributions meeting the safe harbor minimums, but they want to have extended vesting schedules to be able to claw back some or all of the contributions.

[litovskyassetmanagement]

From what I understand they make a 3% contribution to all eligible employees regardless of their own contributions. I also believe that money is 100% vested right away. What benefits do the owners gain from doing this that I am unaware of?

I'm going to attempt to look at the big picture here, because it seems to me that there is more to your question.

If you have high participation from staff, you might be able to get away with having a non-Safe Harbor plan where you don't give your staff anything. But as soon as you fail testing (and this means very low staff participation - after all, why would they contribute if they get nothing in the form of a match?) you have to make corrective contributions that could be higher than the Safe Harbor amounts.

Usually if you don't do profit sharing, 4% match is probably more efficient as only those who participate in the plan get the match - others do not. With a 3% design you usually have profit sharing involved, which means that once all contributions are added up, you should be getting a high percentage of the total (ideally 80% or above). This type of design works out better with a 3% non-elective contribution vs. a match (more money going to you with a 3% design), but it is not a guarantee. If you have lots of staff there may be a breakeven point, though usually for a small practice 3% works out better with profit sharing.

Also, 3% works great with a Cash Balance plan (vs. 4% match). So this is a function of the type of plan(s) you have and specific plan design (that also depends on your demographics). Same thing goes for profit sharing contribution given to staff - the only time it makes sense to do is when you are getting most of the money. So when discussing plan design, it always has to be in a specific context - some practices have amazing numbers, others have terrible numbers, it all depends on your demographics and several other factors, so one size does not fit all here.