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Ronald Cluett Discusses Cross-Tested or New Comparability Plans
Caplin & Drysdale

Ronald Cluett Discusses Cross-Tested or New Comparability Plans

Date: 7/26/2017

A cross-tested, or new comparability, plan is a type of profit-sharing plan that permits the sponsor to divide employees into different groups and project what a current contribution would amount to at retirement age, opening up the possibility of rewarding older employees with higher-dollar contributions, says Adam Pozek, a partner with DWC—The 401(k) Experts, a third-party plan administrator in St. Paul, New Mexico.

The structure works by taking into account benefit accrual rates, says Rob Massa, director of retirement at Ascende Wealth Advisers in Houston. “This takes age into account, enabling the contributions allocated to older employees to be larger than those made to younger employees” because the older employees have fewer years before retirement, Massa says.

These are the type of benefit accrual rates that are applied to defined benefit plans, says Ronald Cluett, of counsel at Caplin & Drysdale in Washington, D.C. “Cross-tested plans are the opposite of a safe harbor plan where the employer makes a uniform contribution for every participant,” Cluett says. “They are at the other end of the spectrum.”

To view the full article, please visit Plan Adviser’s website.

Excerpt taken from the article “New Comparability Plans Popular Among Small, Professional Companies” by Lee Barney for Plan Adviser.

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