New Comparability
Premier Pension Solutions
New Comparability

A profit sharing plan in which employees are divided into groups with each group receiving a contribution that is a different percentage of compensation. The simplest form of grouping employees is to have the owners in one group and all other employees in another group.  Some employers have several groups such as owners, managers, professional staff, clerical staff, etc. 

This type of plan is tested for nondiscrimination on a cross-tested basis under Section 401(a) of the Internal Revenue Code. The calculations involved are complex. In general, the contribution on behalf of each person is accumulated to the retirement age with interest and converted to an annual pension. The pension is expressed as a percentage of the current compensation, and is called an “accrual rate”. The accrual rate for an older employee will be lower than that of a younger employee since there are fewer years for the contribution to accumulate interest. Therefore, to get the same accrual rate, the contribution on behalf of an older employee can be higher than that of a younger employee. The discrimination test is passed if the employees in the favored groups are older than the employees in the less favored groups with lower contribution percentages.

New Comparability plans can be structured with a 401(k) plan or with a Safe Harbor 401(k) plan making them even more beneficial.
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