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Safe harbor

Safe harbor is a legal term that it pays to understand. Bankrate explains what it is.

What is safe harbor?

While many use the term “safe harbor” in reference to accounting and taxes, safe harbor laws are seen in a variety of industries, including real estate, legal and digital media. In general, safe harbor provisions protect an entity from liability as long as it acted in good faith.

Deeper definition

For example, landowners are often required to report the size of their property. They hire surveyors to do the measurements. If those measurements are incorrect, the landowner is not liable for the error because he acted in good faith. The same is true for financial management companies. If they make financial projections and forecasts based on the information they have available and those projections turn out to be incorrect, they are protected by Securities and Exchange Commission safe harbor rules.

When it comes to saving for retirement, the IRS wants to make sure that employers are giving all of their employees a fair shot. To do this, the 401(k) plan must pass a non-discrimination test each year. A Safe Harbor 401(k) is designed to pass the non-discrimination test automatically or to skip it. This is often achieved by the employer matching contributions to a 401(k) plan for all of its employees.

Examples of safe harbor

The Online Copyright Infringement Liability Limitation Act of the Digital Millennium Copyright Act of 1998 is a safe harbor provision that specifically protects online service providers. It shields them from direct copyright infringement and the liability of others who infringe on copyright. However, the law requires the service providers to follow certain rules. This provision was designed to create a balance between the interests of copyright owners and the desires of digital media users.

Another definition of safe harbor is used in relation to business acquisitions. Companies use this tactic as a defense against a takeover. If a company is at risk for hostile takeover, it purposely acquires another company that has heavy regulations. As a result, the company looks less attractive to the other company wanting to take it over.

Safe Harbor also was an agreement between the United States and the European Union that was intended to protect the personal data of European citizens by regulating how it was exported and handled by U.S. companies. The agreement was enacted in 2000 to provide simplified data protection requirements for transferring data across borders. It was overturned by Europe in 2015.

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