How is permitted disparity calculated?

Permitted disparity in a pension plan context, particularly with regards to 401(k) plans, involves determining a difference in contribution limits between highly compensated employees and non-highly compensated employees. This is essential to maintaining compliance with nondiscrimination rules set forth by the IRS.

The calculation of permitted disparity focuses specifically on the salary percentage of the original salary. This means that it looks at how much more in contributions can be made for higher-paid employees in comparison to their lower-paid counterparts. In this regard, the correct answer reflects the method by which the disparity is calculated, allowing for a higher contribution rate for those earning above the Social Security wage base.

By considering the salary percentage of the original salary, the plan administrators can ensure that the plan remains compliant with regulations, thus protecting the tax-qualified status of the plan and ensuring equitable benefits distribution among different salary tiers within the company.

Other options, while related to the administration of pension plans, do not accurately describe how permitted disparity itself is calculated. For example, estimating future compensation increases does not provide a basis for disparity calculation; averaging total compensation across employees does not focus on the necessary differences between salary tiers, and regulatory standards are guidelines rather than a direct calculation method for permitted disparity.