401(k) profit sharing is a great way to reward employees without increasing the employees’ taxable income. However, because of IRS regulations, with most profit sharing formulas the same percentage of pay or dollar amount is given to each participant’s account. This typically means business owners and highly compensated employees (HCEs) cannot receive a greater contribution than non-highly compensated employees (NHCEs).
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But, with the new comparability profit sharing formula, businesses have more flexibility in how these contributions are allocated to participants. Because of how this profit sharing formula is calculated, it can allow businesses to allocate more to older, higher paid owners or employees.
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However, implementing new comparability profit sharing requires the plan to undergo certain compliance tests to show that the contributions don’t discriminate against NHCEs in the long run.
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A new comparability profit sharing formula may be appropriate for your business if:

New comparability formulas can be a good way to provide business owners or other HCEs higher contributions than they would receive under other formulas. Additionally, they typically work better when the targeted individuals are older than the NHCEs, since the nondiscrimination tests look at what contributions made today would be worth at retirement age.
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However, if the targeted individuals are either the same age or younger than the rest of the workforce, a new comparability formula may not be an ideal option.
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The calculations and rules for new comparability are complex, but you can get an in-depth look at how the formula works here.
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Our sponsor support team can also help you determine whether new comparability can work for your unique business needs.
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The ability to choose a new comparability profit sharing formula is included in Guideline 401(k) plans within our Enterprise tier and is available for an additional fee for our Core plans.*
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​*See our Form ADV 2A Brochure for more information regarding Guideline's fees.