With a defined benefit plan (DBP) employers make contributions based on employee salary, age and years of service. The downside of DBPs has always been the fact that employers carry the entire cost of such plans. No employee contributions are made into DBPs. With safe harbor 401(k) plans, the employer and employee share the cost of funding. Employees are eligible to defer part of their salary (meaning no income tax on employee contributions) and employers typically match a percentage of the employees compensation up to the employee contribution amount.

Effective January 1st,  2010 a new hybrid DBP/401(k) plan, called "DB/401(k)", will be available for companies with at least two employees and no more than 500 employees. The DB/401(k) combines a defined benefit plan based on final average pay with a safe harbor 401(k). The beauty of this new retirement vehicle is simplicity. The company has to file only one document for the plan and one form 5500 (Annual Return/Report of Employee Benefit Plan), each year. Best of all, employers don't have to undergo the rigorous testing procedures for traditional (non-safe harbor) 401(k) plans. All the employer need do is make the contributions, file the paperwork and they are all set.

Requirements:
1. The defined benefit portion of the plan must provide a benefit equal to 1% of the final average pay multiplied by years of service, up to a maximum of 20% of final pay.
2. The 401(k) portion of the plan requires automatic enrollment with an employee deferral requirement of 4% of compensation. Matching contributions for highly compensated employees can't exceed the matching contribution rate for non-highly compensated employees.
3. All employees must be immediately vested in their 401(k) accounts.