Which of the following describes a safe harbor option in a 401(k) plan?

• A. It eliminates the need to test for nondiscrimination.
• B. It provides employer contributions that satisfy specific criteria, automatically passing ADP/ACP tests.
• C. It increases the maximum contribution limit for all participants.
• D. It requires participants to meet age 60 minimum.

Answer: (B)

Safe harbor designs ensure nondiscrimination by design. The employer makes contributions that meet specific criteria—for example, a nonelective contribution of at least 3% of pay for all eligible employees, or a qualifying matching formula. Because these contributions are structured to satisfy the ADP and ACP requirements, the plan automatically passes those tests each year, eliminating the need for separate testing. The other statements either misstate what safe harbor does (it doesn’t raise the overall contribution limit) or introduce an unrelated condition (a minimum age of 60), which isn’t part of safe harbor rules.