What Is New Comparability Profit Sharing?

The gateway is permission to use cross-testing. It is not proof that the plan passes nondiscrimination.

That distinction is the cleanest way to understand new comparability.

A new-comparability design is a defined contribution arrangement that can assign different current employer rates to different employee groups and, when the regulatory conditions are satisfied, test those allocations on the basis of equivalent retirement benefits rather than only comparing today's contribution percentages.^[1][3][4]

The structure can be useful when owners or other HCEs are older than much of the workforce.

It can also fail, become expensive or lose its intended economics when:

• employee ages change
• compensation changes
• a new HCE enters
• an older NHCE is hired
• related-company employees must be included
• the plan becomes top-heavy
• Section 415 limits an intended allocation.

New comparability is therefore better understood as a testing method applied to a specific workforce than as a fixed contribution formula that produces the same result every year.

Key Takeaways

• New comparability is an employer-allocation design inside a defined contribution plan, not a separate retirement account.
• The plan document defines the allocation structure; the employer cannot invent participant percentages after year-end.^[5]
• Cross-testing converts defined contribution allocations into equivalent employer-provided benefits for nondiscrimination testing.^[1]
• The conversion uses prescribed actuarial normalization and must apply assumptions consistently across employees.^[1]
• Age matters because the conversion reflects the period between the current allocation and testing age.
• A larger current allocation for an older HCE can therefore produce an equivalent benefit rate closer to a smaller current allocation for a younger NHCE.
• An applicable plan can clear the minimum contribution condition when each NHCE receives a rate at least one-third of the largest HCE allocation percentage.^[1]
• A separate regulatory safe route treats the condition as met when every NHCE receives at least 5% using the required Section 415 compensation measure.^[1]
• The two methods are alternatives. Which one costs less depends on the top HCE percentage.
• Clearing that threshold only unlocks testing on equivalent retirement benefits. The plan still must pass the general nondiscrimination test.^[1][2]
• Under the general test, HCE rate groups are tested under the applicable Section 410(b) framework.^[7]
• Plans with rates available broadly enough, or with qualifying gradual age/service schedules, can reach equivalent-benefit testing through another regulatory path.^[1][3]
• Plan coverage under Section 410(b) and contribution/benefit nondiscrimination remain separate analyses.
• For 2026, the applicable compensation cap is $360,000 and the Section 415 defined contribution dollar ceiling is $72,000, subject to the 100%-of-compensation limit and catch-up treatment.^[9][10]
• A plan that passed last year can require a different contribution pattern this year because the testing population is not static.

New Comparability Starts With Allocation Groups

A traditional pro-rata profit-sharing formula might give every benefiting participant:

8% of eligible compensation

A new-comparability formula can instead assign different rates to plan-defined groups.

A simplified design might have:

Group 1

Owners

Group 2

Professional employees

Group 3

Other staff

The document then provides the allocation method that applies to each group.

The existence of groups does not itself make the design discriminatory.

The question is whether the resulting allocations satisfy the qualified-plan nondiscrimination rules.

The Employer Still Chooses the Contribution Pool Under the Plan

INV-101 explains the underlying profit-sharing structure.

A discretionary employer contribution can vary from year to year.

What is not free-form is the allocation mechanism.

Suppose the plan permits separate allocation groups and the sponsor decides to make a contribution for 2026.

The administrator applies:

1. the written allocation provisions
2. the correct employee population
3. the appropriate compensation definition
4. the gateway rule if required
5. the cross-tested general test
6. Section 415 and other statutory limits.

The desired owner contribution is an input to planning.

It is not the legal test.

Pro-Rata and New Comparability Solve Different Design Problems

IRS identifies pro-rata allocation as a common profit-sharing method and recognizes specified design-based safe harbors.^[5][6]

New comparability accepts more testing complexity in exchange for more allocation flexibility.

Current Allocation Rate Is Not the Cross-Tested Rate

This is the conceptual pivot.

Assume:

Older HCE receives:

15% of compensation

Younger NHCE receives:

5% of compensation

Looking only at current contributions, the HCE receives three times the percentage.

Cross-testing asks a different question.

It converts the current allocations into equivalent retirement benefits under the regulatory actuarial rules.^[1]

The resulting equivalent accrual rate becomes the relevant rate for the benefits-basis nondiscrimination test.

Why Age Changes the Conversion

A current contribution for a younger employee has more years before testing age.

Under the normalization method, time to testing age affects the equivalent retirement benefit.^[1]

Conceptually:

Younger employee

More years for the current allocation to be projected toward testing age.

Older employee

Fewer years.

This is why a higher current percentage for an older participant can translate into a benefits-basis rate that is closer to the rate produced by a smaller current percentage for a younger participant.

It is not because older employees receive a special nondiscrimination exemption.

It is the mathematics of converting current defined contribution allocations into equivalent retirement benefits.

A Simplified Illustration

This example explains the direction of the calculation, not the regulatory actuarial formula.

Suppose:

Owner

Age 60 Current employer allocation: 15% of compensation

Employee

Age 30 Current employer allocation: 5%

The younger employee's contribution has substantially more time before a conventional retirement testing age.

A benefits-basis conversion therefore does not compare:

15% vs. 5%

as though those percentages were the final retirement benefits.

The actual test applies the prescribed normalization assumptions, compensation rules and testing-age framework.^[1]

A TPA or actuary should run the real calculation.

Same Allocation Percentage Can Produce Different Equivalent Benefits

Reverse the example.

Give a 60-year-old and a 30-year-old each:

5% of compensation

Their current allocation percentages are identical.

Their equivalent accrual rates need not be identical because their time horizons to testing age differ.

This is why cross-testing is not simply:

another name for comparing contribution percentages.

The testing lens has changed.

Cross-Testing Does Not Mean "Age-Weighting" Is the Allocation Formula

New comparability and age-weighted allocations can produce superficially similar outcomes.

They are not necessarily the same design.

A plan can have:

• group-based current contribution rates
• a gradual age-based schedule
• a service-based schedule
• another permitted allocation structure.

Treasury Regulation 1.401(a)(4)-8 separately recognizes certain gradual age or service schedules as a path to benefits-basis testing.^[1]

The plan document determines the actual allocation formula.

The cross-test determines how the resulting allocations are tested.

The Gateway Comes Before the Benefits-Basis Test

For a defined contribution plan that does not qualify through broadly available allocation rates or specified age/service structures, the regulation generally requires the plan to clear a contribution gateway before testing equivalent benefits.^[1][3]

That gateway exists because Treasury and IRS limited the ability of highly disparate contribution designs to rely on cross-testing without providing a meaningful current allocation to NHCEs.^[3][4]

Two alternative calculations are central.

Route 1: The Fractional Gateway

The regulation provides that the plan satisfies the minimum contribution condition when each NHCE's allocation rate is at least:

one-third of the allocation rate of the HCE with the highest allocation rate.^[1]

Assume the largest HCE allocation percentage is:

12%

The required fraction equals:

4%

So a 4% allocation rate can satisfy this route.

That does not mean the plan has passed the full cross-test.

It means the plan has cleared this entry condition.

Example: Top HCE Allocation of 8%

HCE allocation used in this example:

8%

Fractional threshold:

2.67%

Under the fractional method, the target is approximately:

2.67%

for the NHCE allocation rate under that gateway calculation, subject to the precise plan/testing rules.

This example shows why the phrase:

"New comparability requires 5% for employees"

is wrong.

Here, the fractional method costs less than the deemed alternative.

Example: Top HCE Allocation of 15%

HCE percentage for this case:

15%

One-third result:

5%

At 15%, the two familiar gateway numbers meet.

Calculated NHCE floor:

5%

Deemed route:

5%

The economic result can diverge again when the HCE rate moves above or below 15%.

Route 2: The Deemed 5% Method

Treasury Regulation 1.401(a)(4)-8 also provides deemed satisfaction when each NHCE receives an allocation of at least:

5% of compensation within the meaning of Section 415(c)(3)

measured over a permitted period.^[1]

This is not a cap placed on the fractional formula.

It is a separate way to satisfy the gateway.

It is a separate deemed-satisfaction rule.

That distinction becomes especially valuable when the top HCE percentage is high.

Example: Top HCE Allocation of 20%

Top HCE percentage in this example:

20%

Fraction-based rate:

6.67%

The regulation's 5% deemed route can satisfy the gateway with:

5% using Section 415 compensation

for each NHCE, assuming the applicable requirements are met.^[1]

The regulation itself illustrates the same economics: with a 20% HCE allocation, the fractional calculation produces 6.67%, while a 5% NHCE allocation can satisfy the separate deemed method.^[1]

Five Percent Is Not Always Cheaper

Suppose the largest HCE rate is:

9%

Gateway percentage:

3%

A sponsor that reflexively provides:

5%

because someone said "new comparability needs 5%" may contribute more than the gateway itself requires.

That may still be a sensible design.

But the reason should be deliberate.

Both gateway calculations should be run before assuming which approach is more economical.

Five Percent Is Also Not an Owner-Max Guarantee

The opposite mistake is more serious.

A sponsor hears:

"Give employees 5% and maximize the owners."

That statement skips the actual nondiscrimination test.

The regulation's 5% route answers:

May this applicable plan use the equivalent-benefit testing path?

It does not answer:

Do all HCE rate groups pass the general test?^[1][7]

Those are different questions.

The Cross-Test Happens After the Gateway

Once that testing path is available, the plan determines equivalent accrual rates under the regulatory method.^[1]

Those equivalent rates are then substituted for current allocation rates in the defined contribution general test.^[1]

That is where the plan's age and compensation demographics begin to matter sharply.

A gateway pass cannot rescue a benefits-basis result that fails the general test.

Rate Groups Are the Next Check

IRS training material describes the general test as breaking the plan into rate groups, sometimes called "mini plans."^[7]

For each HCE, a rate group is formed using employees whose relevant rate is at least as high as that HCE's rate.

In a cross-tested defined contribution plan, the relevant rates are the equivalent accrual rates produced by the benefits-basis conversion.^[7]

Each rate group must satisfy the applicable Section 410(b) standard.^[7]

That is why there can be several separate passing/failing questions inside one employer allocation.

One HCE Can Be the Problem Even When the Others Pass

Assume a plan has:

• three HCEs
• twelve NHCEs

The cross-test can generate a separate rate group for each HCE.

Two HCE rate groups might satisfy the applicable coverage standard.

The third may not.

The plan does not get to average the three HCE outcomes into one intuitive judgment that:

"staff got a decent contribution."

The regulatory general test is more granular.

Coverage and Amount Testing Are Connected but Not Identical

INV-089 explains Section 410(b).

At the plan level, Section 410(b) asks whether a nondiscriminatory employee population benefits.

The qualified-plan nondiscrimination rules ask whether contributions or benefits impermissibly favor HCEs.

Cross-testing connects the two because each HCE rate group is tested using Section 410(b)-style coverage standards.^[7]

So a plan can:

• satisfy overall plan coverage
• clear the gateway
• still fail an HCE rate group.

Three checks can produce three different answers.

Broad Availability Can Provide Another Path

The regulation does not force every cross-tested defined contribution plan through the minimum-contribution route.^[1]

A plan can qualify to test equivalent benefits when its allocation rates are broadly available under the regulatory definition.^[1][3]

At a high level, each rate must be currently available to an employee group that satisfies the applicable Section 410(b) condition.^[1]

This is different from a classic new-comparability design in which favorable rates are reserved for a narrow HCE group.

Gradual Age or Service Schedules Can Also Qualify

The cross-testing regulation separately recognizes specified schedules based on:

• age
• years of service
• age-plus-service points

when the allocation rates increase smoothly at regular intervals under the detailed regulatory requirements.^[1]

Those schedules can qualify for the equivalent-benefit method without relying on the contribution gateway.^[1]

This matters because:

cross-tested defined contribution plan

is broader than:

owner/staff new-comparability formula.

New Comparability Is Highly Demographic

The same written design can produce very different testing economics in two businesses.

Business A

Owners: ages 61 and 58 Most NHCEs: ages 25–38

Business B

Owners: ages 38 and 41 Most NHCEs: ages 52–63

Business A can have a much more favorable age spread for cross-testing.

Business B can lose much of that advantage because the NHCEs are closer to retirement age than the owners.

Nothing about the phrase:

new comparability

guarantees a favorable owner/staff cost ratio.

Hiring One Older NHCE Can Change the Result

Suppose a design has passed for several years with a mostly younger NHCE workforce.

The company hires a 62-year-old NHCE.

That employee's current allocation has relatively little time to testing age compared with younger staff.

The equivalent benefit calculation can change the rate-group composition and testing result.

The plan may need:

• a larger NHCE allocation
• a smaller HCE allocation
• different group contributions
• another testing approach.

The prior year's illustration is not a permanent contract with the tax code.

Hiring a Younger HCE Can Also Change the Economics

Now add a 32-year-old HCE.

A current contribution for that HCE has many years to accumulate in the benefits-basis conversion.

That can produce a strong equivalent accrual rate from a comparatively modest current allocation.

Because each HCE can create a rate group, the younger HCE may become the limiting testing case even if an older owner receives a larger current dollar contribution.

The highest current HCE contribution is not necessarily the hardest cross-tested rate group.

Compensation Matters Twice

Compensation affects new comparability through more than one channel.

First, it determines the current employer allocation under a compensation-based formula.

Second, the testing rules use prescribed compensation definitions for rate calculations and gateway purposes.^[1]

INV-098 explains why a payroll field called:

401(k) compensation

is not enough.

A plan can fail because the contribution percentages were built on one compensation definition while the test requires another.

The Gateway's 5% Uses Section 415 Compensation

The deemed route is specifically tied to compensation within the meaning of:

Section 415(c)(3).^[1]

A plan should not casually calculate the 5% amount using:

• base salary only
• match compensation
• a payroll field excluding bonuses

unless that amount is also the correct compensation under the applicable rule.

The percentage can be right while the dollar base is wrong.

Example: Bonus Changes the 5% Amount

Assume Section 415 compensation is:

Base salary:

$80,000

Bonus:

$20,000

Total:

$100,000

Five-percent gateway amount:

$5,000

If payroll sends only base salary:

5% × $80,000 = $4,000

That $1,000 difference can turn a supposed gateway allocation into a testing failure.

Compensation mapping is not an administrative footnote.

2026 Compensation Cap Still Applies

For 2026, the amount of compensation that can generally be taken into account for specified qualified-plan contribution purposes is:

$360,000.^[9][10]

An HCE earning:

$600,000

does not automatically receive an allocation based on the full $600,000 when the statutory compensation cap applies.

The plan's formula and testing calculations have to apply the relevant limit correctly.

Section 415 Still Caps the Participant

New comparability does not create extra annual-additions room.

For 2026, Section 415 annual additions are generally limited to the lesser of:

• $72,000
• 100% of applicable compensation

before qualifying catch-up contributions.^[9][10]

Annual additions can include:

• regular elective deferrals
• employer match
• profit sharing
• other nonelective employer contributions
• allocated forfeitures.^[9]

A cross-tested allocation can pass nondiscrimination and still require a Section 415 reduction for a specific participant.

Example: Owner Allocation Hits Section 415

Owner already has:

Regular elective deferrals:

$24,500

Employer match:

$7,500

Allocated forfeiture:

$2,000

Subtotal:

$34,000

Proposed grouped employer allocation:

$40,000

Total annual additions:

$74,000

Before any applicable catch-up exclusion, that exceeds the 2026 $72,000 dollar limit.^[9]

A successful cross-test does not authorize the extra $2,000.

The statutory limiter still applies.

Related Employers Can Rewrite the Testing Population

INV-090 and INV-091 cover controlled groups and affiliated service groups.

A new-comparability illustration built only from one company's employees can be useless if the qualified-plan rules require employees of another related entity to be included.

The added workforce can change:

• HCE/NHCE counts
• ages
• compensation
• coverage
• rate groups
• top-heavy aggregation.

Entity structure has to be resolved before optimization.

Top-Heavy Can Add a Different Minimum

INV-086 explains Section 416.

A plan can satisfy its new-comparability testing structure and still be top-heavy.

When the top-heavy minimum applies, non-key employees can be entitled to an employer contribution generally up to 3% of compensation depending on the highest applicable key-employee percentage.^[11]

That contribution requirement is conceptually separate from the cross-testing gateway.

One minimum does not automatically satisfy the other.

Gateway and Top-Heavy Amounts Can Overlap but Must Be Tested Separately

Suppose an NHCE receives:

5% employer allocation

That amount may help satisfy:

• the cross-testing gateway
• a 3% top-heavy minimum

when all applicable rules are met.

But do not reason backward:

"We gave 5%, so every minimum is covered."

The two rules use their own:

• employee classifications
• compensation provisions
• eligibility conditions
• testing mechanics.

The same dollars can be relevant to two requirements without making the requirements identical.

Plan Terms Matter More Than the Spreadsheet

IRS currently warns that using a gateway test different from the test specified in plan terms can create an operational failure.^[2]

Its correction guidance describes a case where a sponsor had historically used one gateway approach but a revised adoption agreement specified another.^[2]

The math was not the only issue.

The plan operated differently from its document.

That is a recurring lesson in qualified-plan administration:

a technically passing calculation cannot cure operation under the wrong plan provision.

The Allocation Groups Must Be Administered as Written

Suppose the plan defines:

Group A

Owners

Group B

Physicians

Group C

All other eligible employees

An employee changes from Group C to Group B midyear.

The administrator needs to determine how the document treats:

• group status
• effective date
• compensation period
• allocation rate.

It cannot simply assign the employee to whichever group makes testing pass.

The plan terms come first.

Anti-Abuse Rules Still Matter

IRS has warned about designs using short-service or low-paid employees to create technically favorable testing populations while providing negligible meaningful benefits.^[8]

Its guidance emphasizes that qualification rules must be interpreted reasonably to prevent discrimination in favor of HCEs.^[8]

This matters because a spreadsheet can satisfy a mechanical percentage test while the underlying design raises a broader qualification problem.

New comparability is flexible.

It is not permission to manufacture nominal NHCE benefits solely to support HCE allocations.

Passing Last Year Does Not Lock In This Year

A plan can repeat the same written allocation percentages and produce a different testing result.

Changes can include:

• employee birthdays
• new hires
• terminations
• compensation shifts
• ownership changes
• HCE status changes
• related-company acquisitions
• top-heavy status
• different participants benefiting under the allocation.

Annual testing is not redundant just because the document did not change.

The workforce did.

A Better Planning Order

Do not begin with:

"How much can we give the owners?"

Use this sequence.

1. Resolve employer structure

Identify controlled-group and affiliated-service-group relationships.

2. Build the employee census

Include age, compensation, ownership, HCE status, eligibility and employment data.

3. Apply the written allocation groups

Do not design from memory.

4. Calculate current allocation rates

Use the correct compensation definitions.

5. Determine the available testing path

Broadly available rates? Qualifying age/service schedule? Minimum contribution gateway?

6. Run equivalent-benefit testing

Apply consistent regulatory assumptions.

7. Test every HCE rate group

Do not stop at the gateway.

8. Apply Section 415 and other limits

Nondiscrimination passing does not override participant dollar limits.

That order reveals the actual economics before the contribution is funded.

Worked Example: 12% HCE Rate

Assume an applicable plan must use the minimum contribution route.

Highest HCE current allocation rate:

12%

Minimum under this method:

4%

NHCE rate under the fractional method:

4%

The plan can clear that gateway calculation with 4%.

The next question is not:

"Are we done?"

It is:

"Do the equivalent accrual rate groups pass?"

Worked Example: 20% HCE Rate

Top HCE allocation:

20%

Result under the fraction:

6.67%

Alternative deemed route:

5% using Section 415 compensation

The deemed 5% method can clear the gateway even though it is lower than the fraction-based result.^[1]

That difference is exactly why the regulation contains the deemed rule.

The plan still needs the benefits-basis test.

Worked Example: 8% HCE Rate

Top HCE allocation:

8%

Required fraction:

2.67%

Deemed route:

5%

Here the fraction-based method is lower.

A 5% allocation may improve the cross-tested result or satisfy another plan objective, but it is not required merely because the design is called new comparability.

This is the trade-off a generic "5% gateway" explanation misses.

Worked Example: Demographics Reverse the Expected Advantage

Year 1:

Owner age:

61

Most NHCEs:

25–35

The plan's age spread is favorable for an equivalent-benefit analysis.

Year 4:

Owner age:

64

but several new HCE managers are:

30–38

and several experienced NHCEs are:

55–62

The same current contribution percentages can produce different equivalent accrual rates and rate groups.

The plan may require more staff contribution or less HCE allocation.

The design did not "stop working."

The demographic inputs changed.

Grouped Allocation vs. Pro-Rata Profit Sharing

Pro-rata

Strengths:

• easier to explain
• easier to administer
• less demographic sensitivity
• often easier to forecast

Trade-off:

• little flexibility to direct different current percentages to different groups.

New comparability

Strengths:

• more allocation flexibility
• can be efficient when workforce demographics support the cross-test

Trade-offs:

• annual testing complexity
• demographic volatility
• potential gateway cost
• greater dependence on accurate census and compensation data
• less predictable owner/staff economics.

The more flexible design is not automatically the better design.

New Comparability vs. Safe Harbor 401(k)

These concepts solve different problems.

Safe-harbor 401(k)

Primarily addresses ADP/ACP nondiscrimination for the cash-or-deferred arrangement when the statutory requirements are met.

Grouped cross-tested allocation

Addresses the allocation and nondiscrimination testing of employer nonelective/profit-sharing contributions.

A plan can use both.

For example:

• safe-harbor nonelective contribution for the 401(k) feature
• an additional grouped employer allocation tested under the applicable rules

The additional employer source still needs its own qualification analysis.

INV-053 covers the safe-harbor structure.

New Comparability vs. Top-Heavy

Neither is a substitute for the other.

New comparability asks:

Can these employer allocation rates satisfy contribution/benefit nondiscrimination?

Top-heavy asks:

Are more than 60% of applicable plan balances attributable to key employees, and if so, what minimum is required?

A plan can:

• pass new-comparability testing
• be top-heavy
• owe additional employer contributions.

Separate problem.

Common Administrative Failures

Wrong compensation

Gateway or allocation rates calculated from an incorrect pay field.

Wrong employee population

Related-employer employees omitted.

Wrong HCE status

Ownership or prior-year compensation misclassified.

Document mismatch

Plan says one testing route; administrator uses another.^[2]

Gateway treated as final test

5% contributed to NHCEs and no rate-group test completed.

Section 415 checked too early

Year-end match or forfeitures added after profit sharing was "maximized."

Demographic assumption reused

Prior-year illustration copied without rerunning current census.

Most are data or sequencing failures, not failures of advanced actuarial mathematics.

Frequently Asked Questions

How does a new-comparability design work?

It is a defined contribution allocation design that can provide different employer contribution rates to plan-defined employee groups and, when regulatory conditions are satisfied, test those allocations on an equivalent-benefits basis.^[1][3]

Is new comparability a separate type of 401(k)?

No. It is an employer contribution allocation/testing design that can exist inside a qualified defined contribution plan, including a profit-sharing plan with a 401(k) feature.

What is cross-testing?

Cross-testing evaluates a defined contribution plan's employer allocations as equivalent retirement benefits rather than only comparing current allocation percentages.^[1]

Why does age matter?

The regulatory conversion projects or normalizes current account increases toward testing age. A younger employee generally has more time before that age, so the same current allocation can translate into a different equivalent benefit than it does for an older employee.^[1]

Does an older owner automatically make new comparability work?

No. The complete HCE/NHCE age, compensation and allocation pattern matters. One younger HCE or older NHCE can materially change rate-group testing.

How does the fractional gateway work?

For an applicable plan using that route, each NHCE generally needs a rate at least one-third of the largest HCE allocation percentage.^[1]

What is the 5% gateway?

The separate deemed route treats the condition as satisfied when every NHCE receives at least 5% using the required Section 415 compensation measure and permitted period.^[1]

Is 5% always required?

No. When the fractional calculation produces less than 5%, that method can require a smaller NHCE contribution.

If employees receive 5%, can owners receive the maximum?

Not automatically. Five percent can clear the gateway, but the equivalent accrual rate groups still have to satisfy the general nondiscrimination test.^[1][7]

What happens with a 20% HCE allocation?

The fractional calculation is approximately 6.67%. The alternative deemed method can satisfy the gateway at 5% when its requirements are met.^[1]

What happens with a 9% HCE allocation?

The fractional calculation is 3%, so a plan can potentially use that lower method rather than defaulting to a 5% contribution.

Can a plan cross-test without using the minimum contribution gateway?

Yes in specified cases. The regulation recognizes broad availability and qualifying gradual age/service or uniform target-benefit structures as alternative paths to equivalent-benefit testing.^[1][3]

Does a gateway pass mean the entire nondiscrimination test passes?

No. The plan still has to satisfy the equivalent-benefit general test and applicable rate-group requirements.^[1][7]

Does overall Section 410(b) coverage guarantee the cross-test passes?

No. Rate groups formed for HCEs also have to satisfy the applicable coverage standard under the general test.^[7]

What are the relevant 2026 contribution limits?

The qualified-plan compensation cap is $360,000 and the defined contribution dollar limit under Section 415(c) is $72,000, subject to the 100%-of-compensation rule and catch-up treatment.^[9][10]

Can the same design pass one year and fail the next?

Yes. Ages, compensation, hires, terminations, HCE status and related-employer populations can change the equivalent rates and rate groups even when the written formula stays the same.

Who normally performs new-comparability testing?

The calculations are commonly handled by a TPA, retirement-plan consultant or actuary with appropriate testing software and plan/census data. The employer and plan administrator still remain responsible for operating the plan according to its document and applicable law.

The New-Comparability Test Stack

Evaluate the design in this order:

Written allocation formula → correct employer/employee population → current allocation rates → gateway or alternative eligibility path → equivalent accrual rates → HCE rate groups → nondiscrimination / coverage result → Section 415 and other statutory limits

The most costly shortcut is stopping after:

"Employees got 5%."

That number can be enough to open the cross-testing door.

It cannot tell you what happens after you walk through it.

Sources & References

1. 26 CFR §1.401(a)(4)-8: Cross-Testing
2. IRS: Correcting Gateway Test Failures
3. IRS Rev. Rul. 2001-30: New Comparability and Cross-Testing
4. IRS T.D. 8954: Cross-Testing and New Comparability Final Regulations
5. IRS: Choosing a Retirement Plan — Profit-Sharing Plan
6. IRS: Design-Based Safe Harbor Plan Compensation
7. IRS: Coverage and Nondiscrimination — Employee Plans Training Material
8. IRS: Discriminatory Plan Designs Using Short Service
9. IRS: 401(k) and Profit-Sharing Plan Contribution Limits
10. IRS: COLA Increases for Dollar Limitations on Benefits and Contributions
11. IRS: Is My 401(k) Top-Heavy?
12. IRS: A Guide to Common Qualified Plan Requirements

Educational Disclaimer

ROIStreet publishes educational content about retirement-plan allocation and nondiscrimination rules. This article is not legal, tax, actuarial, fiduciary or plan-administration advice. New-comparability results depend on the written plan, employee census, ages, compensation, ownership, HCE status, employer relationships, testing assumptions and current law.

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