Summary of New Comparability Final Regulations. 

Under the final regulations, a new comparability plan can continue to satisfy the nondiscrimination rules through cross testing if the plan design satisfies one of two possible gateways. Alternatively, a new comparability plan may continue to cross-test if the plan's allocation rates are considered "broadly available" or if the plan uses age-based allocation rates that satisfy certain requirements. Finally, the proposed regulations contain special rules applicable when combinations of defined contribution plans and defined benefit plans are cross-tested. The final regulations also contain special rules for new comparability plans with grandfathered allocation rates provided to employees who formerly participated in a defined benefit plan or are provided to a group of employees in connection with a merger, acquisition, or other similar transaction. Since these rules appear to have limited application to small plans they are not discussed here.

Minimum Contribution Gateway
A new comparability plan will be allowed to continue to satisfy the nondiscrimination rules under the current cross-testing regime provided each eligible NHCE receives an allocation rate of at least 5% of compensation (as defined in Section 415(c)(3)). In response to concerns raised by ASPA, the final regulations allow compensation to be defined for this purpose to only include amounts paid during the period of participation within the plan year. Also, only employees benefiting under the plan within the meaning of the nondiscrimination regulations are entitled to a minimum contribution. So, for example, a plan with a "participation on the last day of the plan year provision" would not have to give a minimum contribution to employees terminated earlier in the year.

Alternative Minimum Contribution Gateway
A new comparability plan may provide a minimum allocation rate of less than 5%, provided that the minimum allocation rate is not less than one-third of the highest allocation rate. For example, if the top allocation rate under the plan were 12%, the minimum allocation rate for NHCEs would have to be 4%. (Note that in calculating allocation rates for this gateway or the gateway applicable to DB/DC combinations, a definition of compensation that satisfies section 414(s) may be used.) Like the minimum contribution gateway, a new comparability plan that satisfies this gateway could continue to cross-test. Further, the regulations provide that elective deferrals do not count in determining allocation rates. Consequently, if the new comparability plan is combined with a 401(k) plan and HCEs defer under the 401(k) plan, the highest allocation rate for HCEs may be lower than they otherwise would have been, which in turn will reduce the minimum required allocation. Also, any nonelective contributions made under the 401(k) plan will count toward the minimum allocation requirement.

Broadly Available Allocation Rates
Under the final regulations, a new comparability plan will not have to satisfy the minimum contribution gateways if its allocation rates are considered broadly available. A new comparability plan is considered to have broadly available allocation rates if each allocation rate under the plan is currently available to a group of employees that satisfies section 410(b) (without regard to the average benefits test). This is the same current availability test applicable to benefits rights and features under the nondiscrimination regulations. The final regulations permit two allocation rates to be aggregated for this purpose provided the higher allocation rate independently satisfies section 410(b) (without regard to the average benefits test). Also, in determining whether a plan has broadly available allocation rates, differences in allocation rates resulting from any method of permitted disparity are disregarded. Small business retirement plans are generally not expected to be able to take advantage of these rules.