A recent addition to the types of plans available is the "comparability" profit sharing plan. This is similar to a conventional profit sharing plan in that the amount of the contribution is discretionary. The allocation of the contribution takes into account both the age and wage of the participant. The intent of the new allocation method is to allow employees who are closer to retirement to receive a bigger piece of the contribution. Since these employees have a relatively short period from now until retirement, they must save more to reach the same goals as younger participants. In essence, the comparability plans recognize that disparities in allocation which result from differences in age should not be penalized. The plans work by changing the focus of nondiscrimination testing away from the dollar amount of the contribution and to the value of the contribution to each individual. To measure this benefit value, each employee’s allocation is accrued with interest to normal retirement age and then converted into an equivalent life annuity based upon a discount rate and mortality table. By dividing this benefit value by an employee’s compensation, we calculate an “accrual rate” to be compared with the accrual rates of others and grouped into “rate groups”. Plans pass the discrimination test on the basis of a comparison between the number of non-highly compensated and highly compensated employees who are in each rate group. These steps apply in general to comparability plans, although plans including permitted disparity become more complicated. To realize the significance of this type of plan to a small business owner, consider the following example. Owner M runs a small incorporated firm with two employees, K and L, and has a profit sharing plan which is allocated on the basis of compensation. $32,635 is allocated in the fourth column below. If she were to amend her plan to be a cross-tested plan with permitted disparity, the allocation would be that of column five. Of course, the actual change in allocation for any plan will depend upon the ages and compensation of each participant.     Name       Age     Compensation   Allocation using Current Plan Allocation using Cross-Testing   Difference   Owner M 55 $160,000 $22,702 $29,914 $7,212 Employee K 30 $30,000 $4,257 $1,166 (3,091) Employee L 38 $40,000 $5,676 $1,555 (4,121) Total $230,000 $32,635 $32,635 % of Comp 14.19% 14.19%