New comparability

What new comparability is

In a standard profit sharing allocation, everyone receives the same percentage of pay. A new comparability plan, also called a cross-tested plan, puts employees into groups (sometimes each person is their own group) and gives each group its own rate. To show the result is fair, the plan converts each person’s contribution into the benefit it would buy at retirement age and tests those benefits. Because a dollar contributed for a 28-year-old grows for much longer than a dollar for a 58-year-old, the test often allows higher contribution rates for older employees, who are often the owners.

Why it matters to employers

It can direct more of the profit sharing budget to owners or key staff than a pro rata formula would. The price is a minimum for everyone else, called the gateway. Each non-highly compensated employee must receive at least the lesser of 5% of pay, or one-third of the highest rate given to any highly compensated employee.

Example with 2026 figures

Two owners each receive a profit sharing contribution of 20% of pay. One-third of 20% is 6.67%, so the gateway is the lesser figure, 5%. Every eligible staff member must receive at least 5% of pay. A safe harbor 3% nonelective contribution counts toward that 5%. Each owner’s total still has to fit within the $72,000 annual additions limit.

Common mistakes

• Assuming a design that passed last year will pass this year. Results change with the ages and pay of your workforce.

• Paying the gateway to some staff but not all who are entitled to it.

• Adopting the design without a plan document that supports allocation by group.

• Skipping the annual test. It has to be run every year by someone qualified to do it.