What is a primary benefit of using a 401(k) safe harbor plan design?

Choosing a 401(k) safe harbor plan design offers significant advantages, particularly in simplifying compliance testing. Safe harbor plans are structured to automatically meet certain IRS testing requirements, such as the Actual Deferral Percentage (ADP) test and the Actual Contribution Percentage (ACP) test. By adhering to specific contribution and matching requirements, employers can avoid the complexities involved in these tests, which typically assess the plan's compliance based on employee participation and contribution levels. This leads to a smoother administration process for the employer and provides clarity for employees regarding their benefits.

While other options may present different aspects of 401(k) plans, they do not accurately capture the primary benefit of a safe harbor design. For instance, it does not completely eliminate employer responsibilities or expand investment options in a way that a variety of plans might. Additionally, it does not inherently reduce employee contributions; instead, it encourages broader participation and may lead to higher overall contributions from employees who feel more secure in a compliant and beneficial plan structure. Thus, the emphasis on compliance testing is what distinctly highlights the primary advantage of a 401(k) safe harbor plan design.