A New Comparability Plan is a type of “Cross-Tested” Plan. The employer
contribution is allocated by a formula set out in the plan document. Under a
typical new comparability design, plan participants are divided into two or more
groups with each group receiving its own level of employer contributions.
Examples of groups that may be established are based on job category, age, or
age and service.
This type of plan design may permit a profit sharing plan to make very
substantial contributions for an, on average, older group, yet provide a much
lower contribution for the younger and presumably lower paid employees. If the
demographics are workable, this will result in a considerably larger
contribution to the ownership group than that which could be obtained using
permitted disparity or a non cross-tested design.
| Employee |
Age |
Salary |
Deferral |
SH Cont |
PS Cont |
Total |
| Owner |
50 |
$255,000.00 |
$23,000.00 |
$7,650.00 |
$25,850.00 |
$56,500.00 |
| |
|
|
$23,000.00 |
$7,650.00 |
$25,850.00 |
$56,500.00 |
| |
|
|
|
|
|
|
| EE 1 |
32 |
$24,000.00 |
$0.00 |
$720.00 |
$480.00 |
$1,200.00 |
| EE 2 |
56 |
$36,000.00 |
$0.00 |
$1,080.00 |
$720.00 |
$1,800.00 |
| |
|
|
|
$1,800.00 |
$1,200.00 |
$3,000.00 |
| |
|
|
|
|
|
|
| Total |
|
|
|
$9,450.00 |
$27,050.00 |
$59,500.00 |
*95% to owner
New comparability can work very well for 401(k) plans in which the employees
are not deferring enough to allow the highly compensated employees to defer
their desired amount. In these situations, the highly compensated employees are
able to achieve the desired level of contribution through a new comparability
profit sharing contribution, with no deferrals necessary. Since the highly
compensated employees are not making salary deferrals, they are not limited
based on the deferral percentages of the non-highly compensated employees.
Highly compensated employees are not dependent on employee deferrals, and a
matching contribution is not needed to encourage higher levels of employee
deferrals.
| Employee |
Age |
Salary |
PS Cont |
| Owner |
50 |
$255,000.00 |
$51,000.00 |
| |
|
|
$51,000.000 |
| |
|
|
|
| EE 1 |
32 |
$24,000.00 |
$1,200.00 |
| EE 2 |
56 |
$36,000.000 |
$1,800.00 |
| |
|
|
$3,000 |
| |
|
|
|
| Total |
|
|
$54,000.00 |
*95% to owner