What characterizes a new comparability plan?

What characterizes a new comparability plan?

• A. All participants receive equal contributions regardless of age.
• B. It is cross-tested based on benefits rather than contributions.
• C. Only highly compensated employees are eligible.
• D. Contributions are limited to a fixed percentage of salary for all employees.

Answer: (B)

A new comparability plan is characterized by its ability to provide different contribution rates based on the employee's classification, often favoring specific groups without violating nondiscrimination rules. This plan type is designed so that the contributions made into it can be tested based on the benefits provided, rather than merely the contributions made to the plan. This means that the benefits must be cross-tested to ensure they do not disproportionately favor highly compensated employees, which is integral in maintaining compliance with federal regulations. Thus, the focus on benefits rather than contributions helps in assessing whether the plan meets the nondiscrimination requirements, ensuring fair treatment across employee groups while allowing for differentiated contributions based on employee classifications. The other options do not capture this essential feature of a new comparability plan, which sets it apart from other retirement plans.

A new comparability plan is characterized by its ability to provide different contribution rates based on the employee's classification, often favoring specific groups without violating nondiscrimination rules. This plan type is designed so that the contributions made into it can be tested based on the benefits provided, rather than merely the contributions made to the plan.

This means that the benefits must be cross-tested to ensure they do not disproportionately favor highly compensated employees, which is integral in maintaining compliance with federal regulations. Thus, the focus on benefits rather than contributions helps in assessing whether the plan meets the nondiscrimination requirements, ensuring fair treatment across employee groups while allowing for differentiated contributions based on employee classifications.

The other options do not capture this essential feature of a new comparability plan, which sets it apart from other retirement plans.