As a business owner, you want to maximize your retirement savings while helping employees do the same. Offering a new comparability profit-sharing plan can be a great way to achieve both, ensuring that your entire team benefits.
A traditional profit-sharing plan allows employers to make additional discretionary contributions to employees’ 401(k) accounts—beyond an employer match or other 401(k) benefits. This flexibility already makes profit-sharing plans a great option for certain companies that want to support employees’ retirement readiness.
A new comparability profit-sharing plan takes this flexibility one step further. It has gained popularity due to its ability to provide substantial contributions to specific groups within a workforce while maintaining compliance with IRS regulations.
When is a New Comparability Profit-Sharing Plan a Good Fit?
New comparability profit-sharing plans are especially attractive for companies that want to maximize retirement savings for owners or key employees without dramatically increasing costs across their entire staff.
They tend to be a good fit for:
- Professional services firms like medical, legal, accounting, or financial practices
- Businesses with older owners and younger staff, allowing bigger owner contributions
- Companies seeking contribution flexibility across employee groups
- Profitable, stable businesses that can commit to ongoing contributions
- Closely held or family-owned firms wanting to reward key employees or family members
How New Comparability Profit-Sharing Plans Work
As with any profit-sharing plan, a new comparability plan can be rolled into a 401(k) plan or set up as a standalone plan. This approach allows employers to strategically allocate contributions based on employee groups or classes (e.g., owners, executives, and staff). Traditional profit-sharing plans, on the other hand, allocate funds proportionally based on compensation.
For example, business owners or higher-paid employees can receive the maximum allowable contributions under IRS limits, while other employees receive proportionate contributions that still meet non-discrimination testing requirements. This ensures fairness while allowing for flexibility in prioritizing contributions where they have the most impact.
Employers can typically contribute up to 25% of eligible employees’ compensation. With the new comparability formula, you can designate a higher percentage of profit-sharing contributions to one class or individual (e.g., the owner), and 5% to staff. Let’s look at an example of a small marketing agency.
Group & Salary | Contribution Rate | Contribution Amount |
Owner - $250,000 | 20% | $50,000 |
Creative Director (key employee) - $120,000 | 10% | $12,000 |
Staff - $45,000-$70,000 each | 5% | $2,250-$3,500 per employee |
Annual retirement contribution limits also apply to profit-sharing plans. For 2025, the maximum annual contribution (including employer profit-sharing, 401(k) elective deferrals, and matching) is $70,000 per participant. The compensation limit, or maximum compensation that can be used to calculate contributions, is $350,000.
Benefits of a New Comparability Plan
Because they’re so customizable, new comparability profit-sharing plans offer a few key advantages for both business owners and their employees.
Increase Contributions for Key Employees
Owners and highly-compensated employees (HCEs) receive a larger portion of the annual employer contribution, and can contribute up to the annual IRS limit. Employers can also tailor contributions to reward long-term employees, key personnel, or specific roles within the organization—all while complying with non-discrimination testing requirements.
Keep Employee Benefits Cost-Effective
Since new comparability profit-sharing contributions are tax-deductible, this type of plan can help companies provide additional tax shelter for owners and executives while also sharing profits with employees. As with any profit-sharing plan, employers can adjust contributions annually based on business performance or even forego them in certain years.
Bottom line: Employers can offer competitive benefits to employees while managing overall contribution costs effectively.
Attract & Retain Talent
Finally, offering a profit-sharing plan enhances your benefits package, helping to attract new employees while motivating and building loyalty among key employees.
Compliance & Non-discrimination Testing Requirements
The new comparability formula must meet strict non-discrimination requirements, which must be reported to the IRS annually using Form 5500. These tests include:
- Minimum Gateway Requirements: Non-highly compensated employees (NHCEs) must receive at least 5% of their compensation or ⅓ of the highest contribution rate for HCEs. Many employers establish a Safe Harbor 401(k) plan to help cover this gateway and be exempt from some non-discrimination tests.
- Non-Discrimination Testing: The plan must pass IRS tests to ensure contributions do not unfairly favor HCEs.
Although these tests are complex, you won’t have to handle them alone—all of this is managed by your 401(k) plan’s third-party administrator.
If you decide to offer a new comparability profit-sharing plan, you have until the tax filing deadline to establish it. Employer contributions can also be made up until the business’s tax filing deadline, including extensions.
Maximize Retirement Savings Across Your Company
A new comparability profit-sharing plan can be a powerful tool for business owners who want to balance their own retirement savings goals with offering competitive benefits to employees. By strategically allocating contributions, you can reward key employees, manage benefit costs, and stay compliant with IRS rules.
This type of plan may be worth exploring if your business is profitable, has a mix of older owners and younger staff, or simply wants more flexibility in retirement plan design.
FSRP can help you determine whether a new comparability plan is the right fit for your business and guide you through the setup and compliance process. Contact us today to discuss how we can design a retirement strategy that works for you and your employees.
Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser. Financial Strategies Retirement Partners (FSRP) is a Registered Investment Adviser. Financial planning services offered by FSRP are separate and unrelated to Commonwealth. FSRP does not provide legal or tax advice. You should consult with a legal or tax professional regarding your specific circumstances.