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What
is a New Comparability Plan? |
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A
New Comparability Plan is a Profit Sharing Plan in which
the employees are divided into classes, with each class
receiving a contribution with a different percentage of
compensation. For example, the owners may be in one class
and all the other employees in another class. Some plans
may have more classes depending on their employee demographics
and goals. This arrangement can help you maximize deductible
contributions to select owners and key employees. |
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How
much contributions are allowed for the business owner? |
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They
can be designed to allow business owners to receive the
maximum contribution permitted in a defined contribution
plan $54,500 with catch-up contributions. |
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Can New Comparability be used with a 401(k) plan? |
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It
can be structured as a stand-alone profit sharing plan or
can include a 401(k) structure allowing for employee salary
deferrals. It can be used with both new and existing 401(k)/
Profit Sharing Plans. |
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Is there a Non-Discrimination Test to be passed? |
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Yes, this type of plan is tested for nondiscrimination on
a cross-tested basis under Section 401(a)(4) of the Internal
Revenue Code. The calculations are complex and difficult to
explain. |
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Are
contributions to New Comparability Plans discretionary? |
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Because
it is a Profit Sharing plan, contributions can be increased
or decreased annually. |
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Comparison
of Profit Sharing Formulas |
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Legend:
P - Principal, O - Owner, H - Highly Compensated Employees,
C - Class |
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This
chart shows how New Comparability can favor the Principals
– receiving an
allocation of 93.7% of the total contribution and only 6.3%
goes to the Non-Principals. |
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