Why safe harbor, PEP and starter-k plans matter

Last updated: December 15, 2025

Three 401(k) plan options — safe harbor, PEP (pooled employer plan), and starter-k — are gaining attention as retirement savings needs evolve. Each option provides businesses with a distinct path to help workers establish long-term security while managing costs and fulfilling fiduciary duties.

Safe harbor, PEP and starter-k plans key takeaways:

• Safe harbor 401(k) is best for employers who want to bypass complex compliance testing and allow highly compensated employees to contribute the maximum amount.
• PEP plans are ideal for organizations that want to reduce administrative work and share fiduciary responsibilities through professional oversight.
• Starter 401(k) plans are a cost-effective, entry-level option for businesses offering retirement benefits for the first time.
• Integrated retirement and payroll solutions deliver automation, greater control and transparency, reducing risk and improving employee outcomes.

What is a safe harbor plan?

Safe harbor 401(k) plans are designed to ensure retirement benefits are fair for all employees while allowing highly compensated employees (HCEs) to contribute the maximum amount without risk of refunds or failed testing. They also meet Internal Revenue Service (IRS) non-discrimination requirements automatically, minimizing compliance surprises and administrative headaches for plan sponsors and facilitating more predictable plan structures.

Benefits of safe harbor

• Automatic compliance: Safe harbor plans automatically pass the IRS’s actual deferral percentage (ADP) and actual contribution percentage (ACP) tests.
• Higher contribution potential: HCEs can contribute up to the annual IRS limit without worrying about refund restrictions.
• Increased participation: Employer contributions encourage greater employee engagement and long-term savings.
• Simplified administration: Predictable rules make it easier to manage contributions and plan reviews.

Despite these advantages, there are a few disadvantages to consider with safe harbor 401(k) plans. Employers must make mandatory contributions each year and provide advance employee notices. These requirements can increase cost and reduce flexibility for some organizations, but for many, the trade-off is worth the stability.

Safe harbor contribution types

Employers can choose between two main contribution types:

Type	Description
Matching Contribution	The employer matches 100% of the first 3% of employee deferrals and 50% of the next 2%.
Non-Elective Contribution	The employer contributes 3% of each eligible employee’s compensation, regardless of whether the employee defers.

Under the SECURE Act, employers also have more flexibility to adopt safe harbor provisions later in the plan year, giving HR teams extra time to decide which structure best fits their budget and workforce needs.

What is a PEP plan (pooled employer plan)?

A pooled employer plan (PEP) allows multiple, unrelated employers to share a single 401(k) plan under a unified structure. Created under the SECURE Act, these plans make it easier for smaller businesses to offer competitive retirement benefits without managing every administrative detail on their own.

What’s the difference between a traditional 401(k) and a PEP?

A traditional 401(k) is run by one employer, who must handle all testing, compliance and filings. In a PEP, these responsibilities shift to a pooled plan provider (PPP), which manages administration and fiduciary oversight. In other words, employers benefit from a professionally managed plan, allowing them to focus on their workforce instead of paperwork.

Who can join a PEP?

Any unrelated employer can participate. There’s no shared ownership or industry connection required. This open eligibility lowers the barrier for small and midsized businesses that want to offer retirement benefits but need a simpler, more affordable way to do it.

What are the benefits of a PEP?

• Simplified administration: Employers join a pre-approved plan with centralized management.
• Shared costs: Administrative expenses are pooled across participants.
• Reduced fiduciary duty: Oversight is handled by 3(16) and 3(38) fiduciaries.
• Integrated retirement solutions: When paired with ADP’s embedded payroll and retirement technology, PEPs streamline contributions, reporting and compliance.

Who is the plan sponsor for a PEP?

In a PEP, the PPP acts as the named 401(k) fiduciary and plan administrator. This setup transfers key fiduciary responsibilities — including compliance, testing, and plan oversight — away from individual employers. Businesses that shift fiduciary duty to the PPP reduce risk, save time and can focus on supporting their employees’ financial well-being.

What is a starter-k plan?

A starter 401(k), also known as a starter-k plan, gives employers a simple, affordable way to offer retirement benefits without the complexity of a traditional 401(k). It’s designed for businesses that haven’t yet established a plan but want to help employees begin saving for retirement right away.

Key features of a starter 401(k) plan include:

• Low cost and easy setup: Minimal administration and no annual compliance testing.
• No employer contribution required: Businesses can launch a plan without committing to company contributions, such as a match or nonelective contributions.
• Automatic enrollment: Employees are enrolled by default, helping boost participation.
• SECURE Act 2.0 advantages: Employers receive startup tax credits and flexible plan design options.
• Ideal for growing organizations: A good first step for companies not yet ready for a safe harbor or PEP plan.

Starter 401(k) plans compared to safe harbor and traditional plans

Choosing the right 401(k) plan options depends on cost, complexity, and the level of employer involvement a business can manage. While starter 401(k) plans simplify setup and reduce cost, safe harbor 401(k) and traditional 401(k) plans provide more flexibility and higher contribution potential.

Feature	Starter 401(k)	Safe harbor 401(k)	Traditional 401(k)
Contribution limits (2026)	Up to $6,000 ($7,000 age 50+)	Up to $24,500 ($32,500 age 50-59)	Up to $24,500 ($32,500 age 50-59)
Employer match required	Not allowed	Required (match or non-elective)	Optional
Administrative burden	Low – minimal testing and filings	Moderate – simplified testing	Higher – full testing required
Plan complexity	Simple, best for first-time sponsors	Balanced, compliance built in	More complex, customizable
Testing requirements	Exempt	Automatically passes non-discrimination tests	Must pass ADP/ACP and top-heavy tests

For HR and finance teams, the distinctions between plans can significantly impact both compliance and engagement. Businesses just getting started may prefer a starter 401(k), while growing employers might choose a safe harbor 401(k) or traditional 401(k) for higher contribution limits and greater design flexibility.

Will starter 401(k) plans be popular?

Starter 401(k) plans are gaining traction quickly. The SECURE 2.0 Act introduced stronger incentives and expanded tax credits that make offering retirement benefits more affordable than ever. Employers can now claim credits for plan startup costs, administrative expenses and even contributions, all of which lower the financial barrier to entry.

Starter 401(k) plans are especially appealing for:

• Cost-conscious employers looking for a low-maintenance retirement option.
• Small businesses not yet ready for the structure of a safe harbor or PEP plan.
• Organizations avoiding fiduciary complexity but wanting to support employee savings.

For many companies, the starter 401(k) is the on-ramp to long-term retirement readiness because it’s simple to launch and scalable with future workforce needs. It can evolve as needed into a safe harbor or PEP plan, which offers higher contribution limits and more customization.

Why these plan types matter more than ever

Today’s workforce expects retirement benefits that are simple, inclusive and reliable. Safe harbor, PEP and starter-k plans deliver those results, each in a different way.

Lower cost, simplified administration

• Starter-k and PEP plans reduce compliance testing and fiduciary oversight.
• Centralized plan management lowers administrative costs.
• Embedded payroll and retirement integration, such as ADP’s SMARTSync®, streamline reporting and contributions.
• HR teams spend less time on manual processes and more time supporting employees.

Tax benefits

• The SECURE 2.0 Act expanded credits for plan startup costs and employer contributions.
• Additional tax incentives apply for hiring and supporting military spouses.
• Credits can cover up to 100% of administrative expenses for new plans.
• These savings enable small and mid-sized employers to offer more comprehensive benefits packages.

Competitive advantage and increased participation

• Safe harbor lets highly compensated employees contribute the maximum amount without testing concerns.
• PEP makes plan sponsorship more accessible through shared administration and fiduciary support.
• Starter-k encourages participation with automatic enrollment and simple onboarding.
• Integrated benefits platforms improve accuracy and the overall employee experience.

Retirement savings opportunity and contribution flexibility

• Starter-k has lower contribution limits to help new savers start small and build momentum.
• Safe harbor has higher contribution limits to support long-term savings for all income levels.
• Employers can evolve plans over time, from starter-k to safe harbor or PEP, as workforce needs change.
• Each structure supports stronger retirement readiness and a more financially confident workforce.

Tomorrow’s retirement plans, designed for today’s workforce

As new legislation and technology continue to reshape the retirement landscape, HR and finance leaders should review their current plan design. If they haven’t done so already, now may be the time to switch to a modern, integrated retirement solution that simplifies administration, strengthens compliance and helps more employees reach long-term financial security.

Frequently asked questions