What Is a New Comparability Plan?
Some profit-sharing plans treat every employee the same. A new comparability plan does the opposite on purpose, and it’s built to do that within the rules.
The short answer
A new comparability plan is a type of profit-sharing design that divides employees into separate defined groups — often something like owners, managers, and all other staff — and allows each group to receive a different contribution rate, rather than requiring one flat percentage of pay for everyone. The plan still has to pass the government’s nondiscrimination testing each year, which is typically done using cross-testing methods that compare projected retirement benefits across groups rather than just comparing current contribution dollars.
How the group structure works
An employer sets up a new comparability plan by defining specific classes of employees in the plan document, and each class can be assigned its own contribution percentage, decided anew each year based on the company’s profits and its priorities. This is different from a traditional profit-sharing plan, where a single formula, usually a flat percentage of compensation, applies uniformly across the entire workforce. The flexibility to define groups is the plan’s defining feature, and it’s also the source of its name — the design compares contribution levels across groups in a newer way relative to older, simpler profit-sharing formulas.
Why it needs testing at all
Because the whole point of a new comparability plan is to give some groups a bigger contribution than others, the government requires it to demonstrate that the resulting benefits aren’t unfairly skewed toward higher-paid employees. That’s where cross-testing comes in: instead of comparing raw contribution percentages, the plan converts each group’s contribution into a projected retirement benefit, accounting for age and years until retirement, similar to how an age-weighted allocation approaches the same problem from a different angle. If the projected benefits pass the required thresholds, the plan can proceed with its differentiated group contributions for that year.
Why smaller businesses gravitate toward this design
New comparability plans are especially common among small businesses with a handful of owners or partners who are also the highest earners. The structure lets the business direct a larger share of the annual profit-sharing contribution toward that ownership group, within legal limits, while still offering a smaller but real contribution to the rest of the staff. Because the classes and percentages can be revisited each year, the plan also gives the employer flexibility to adjust contributions based on how the business actually performed, rather than locking in a single rigid formula indefinitely.
What it looks like from an employee’s side
An employee covered by a new comparability plan may notice their profit-sharing contribution differs meaningfully from a coworker’s, even at similar pay, depending on which defined group they fall into. This isn’t inherently improper — it’s the intended outcome of a plan design the government has specifically permitted, provided the required testing is satisfied every year. The plan’s summary plan description should identify the employee classes and explain, at least in general terms, how contributions are determined for each one.
The takeaway
A new comparability plan is really a profit-sharing formula built around flexibility: different groups, different rates, and annual testing to keep the whole arrangement within the rules. For anyone participating in one, the more useful question usually isn’t why the contribution differs from a colleague’s, but which group the plan document places them in and how that group’s rate has been set from year to year, since that answer explains most of what shows up on the account statement.