Profit Sharing Plans enable an Employer to provide employees with a retirement plan by linking a discretionary contribution to company profits. Profit sharing contributions can be made in a variety of ways, a percent of compensation, a flat dollar amount, and the contribution may or may not be integrated with social security.
A New Comparability Plan, otherwise known as a Cross Tested Plan, is a relatively new type of profit sharing plan which enables an Employer to maximize the benefits of highly compensated employees while having the plan remain in compliance with IRS regulations.
IRS regulations allow employers to divide plan participants into two or more classes of employees. Many times larger contributions can be made for one class versus another depending on the age of the employees in the group. The regulations provide for a method of projecting the contribution and equating it to a benefit at retirement age by using an acceptable interest factor. Discrimination tests are peformed to show that the benefits provided to highly compensated employees are "comparable" to benefits provided to non-highly compensated employees and therefore the plan is nondiscriminatory, and therefore permitted under the law.