New Comparability Plans –
More Retirement Contributions For Older Owners
First, while we call them “new”, these plans are no longer new, having been finalized in the Code in 1993. We prefer the name “super-comparability” because it is the most flexible type of plan. Why? Because it can target, with precision, extra benefits to select classes of employees. These plans are also known by other names, such as “super-integrated”, “classification plan”, “group allocated plan” — but are mostly known by the moniker “New Comparability Plans”
New Comparability Plans combine sophisticated rules to allow such things as age-weighting, using weighted averages to determine the contribution. This plan is ideal, therefore, for principals who
- Are older and earn more than most of their employees;
- Want the biggest possible share of the plan contribution allocated to their own accounts; and,
- Desire the contribution flexibility of a profit sharing plan.
New Comparability is highly customizable and can be matched to a business quite easily. For example, groups can be created for different profit centers, subsidiaries, sister companies or, most commonly, by job class—in short, any clearly identifiable group. Some sponsors get quite creative to create clearly identifiable classes that best match their business organization.
Interestingly, creating different classes does not mean you have to give different contributions in any given year. In some years, you can give each class zero or perhaps 25% of pay to everyone. It’s your call, as long as the contribution satisfies testing each year.
The basic rule of thumb is that the contribution you give to the bottom group(s) will determine how much you can give to the others. If the preferred groups are, on average, older than the bottom groups, you should be able to leverage modest contributions to the rank and file employees into substantial c ontributions to the other groups.
Are New Comparability Rules for you and your business? Why not call us today for a free, no-obligation, consultation at 612-202-0942, Or sign up for our free consultation and tell us your questions, and we’ll get back to you with the answers soon.
