FPA Journal - New Comparability Plan: A New Paradigm on Retirement Planning for Small-Business Owners
New Comparability Plan: A New Paradigm in Retirement Planning for Small-
by Keith R. Fevurly, CFP®, J.D., LL.M.
● A profitable, closely held small-business owner not only may want to implement a qualified retirement plan
for the business, but also contribute additional money on a pre-tax basis beyond the current annual
elective deferral limits. And the owner may simultaneously want to minimize contributions to lower-paid
employees. One answer is the new comparability plan.
● This plan is a form of cross-tested defined-contribution retirement plan that typically takes the form of a
discretionary profit-sharing plan. The Treasury Department issued final regulations in 2001, but the plan is
still not widely understood and is often confused with its close cousin, the age-weighted profit-sharing
● The common design factor underlying the plan is an allocation or contribution formula that rewards highly
compensated employees more favorably than lower-compensated employees, regardless of age or years
of service. This type of plan will successfully pass the nondiscrimination rules applicable to all tax-qualified
plans as long as it satisfies one of two minimum "gateway" requirements, or provides a "broadly available"
allocation rate to all employees or a "gradual age or service schedule" option.
● The plan works especially well where the owners of a small business are of different ages, but earn
approximately the same amount of compensation, thus precluding an age-based plan. The new
comparability plan is more flexible and can allocate more to the owner/employee than an age-weighted
plan. The plan also works well as a supplement to an existing 401(k) plan already established for the
benefit of the small-business owner(s) and the owner's employees, something the age-weighted plan can't
Keith R. Fevurly, CFP®, J.D., LL.M., of Centennial, Color