What is the formula for calculating safe harbor contribution, and what is the maximum salary considered?

The safe harbor contribution formula is designed to ensure that 401(k) plans comply with the nondiscrimination requirements set forth by the IRS. By establishing a safe harbor contribution, employers can avoid certain testing requirements that might otherwise apply to their retirement plans.

Option B, which states the contribution is 3 percent of total employee gross salary with a maximum salary considered of $305,000, accurately reflects the IRS guidelines for safe harbor contributions. This amount is designed to ensure that a sufficient benefit is provided to participants, while also taking into account the compensation limits set by the IRS for the purpose of calculating contributions.

The maximum salary cap listed, which is $305,000, is also in line with the IRS guidelines, which adjust annually based on cost-of-living increases. Such careful consideration helps employers maintain compliance and ensures employees receive meaningful benefits from their 401(k) contributions.

The other options do not align with the standard safe harbor contribution requirements or the relevant maximums specified by the IRS, reflecting discrepancy either in the percentage or the maximum salary allowed. Understanding these standards is crucial for employers to design their plans effectively and to provide adequate retirement benefits for employees.