Cross-testing converts today’s employer contributions into equivalent retirement benefits so the plan can compare them on a common basis.
Why compare future benefits?
A dollar contributed for a 30-year-old has more time to grow before retirement than a dollar contributed for a 60-year-old. Cross-testing uses prescribed assumptions to reflect that difference when comparing employer-provided retirement benefits.
That can make a larger percentage for an older owner compatible with a smaller percentage for younger employees. The method does not guarantee that every older-owner design works.
A simple growth illustration
To see the intuition, assume a common age 65 and a hypothetical 7% annual growth rate. These are teaching assumptions, not investment forecasts or a formal equivalent-benefit calculation.
| Person | Contribution today | Years to age 65 | Illustrative value at 65 |
|---|---|---|---|
| Age 60 | $15,000 | 5 | $21,038 |
| Age 30 | $5,000 | 35 | $53,383 |
The smaller contribution has much longer to grow. Actual testing also accounts for compensation, actuarial conversion, permitted assumptions and the full employee population. This table does not establish a passing allocation.
What the provider actually compares
The provider determines each person’s equivalent benefit accrual rate (often called an EBAR). Think of it as a common measuring scale for retirement benefits, not an account balance or investment return.
The plan then examines testing rate groups associated with HCEs. Enough NHCEs must have comparable or higher measured rates under the applicable tests. One problematic HCE rate group can prevent an otherwise appealing allocation from working.
What can change the result?
- A younger owner has less age-based advantage over the workforce.
- An older employee may need a larger contribution to reach the necessary equivalent benefit rate.
- A compensation correction or an omitted employee can change the calculations.
- Different owners’ objectives can produce different constraints.
The gateway must also be satisfied when that route is used. Ask the provider which employees or rate groups drive the cost, what assumptions were used, and whether the amounts are preliminary or based on final census data.
Explore the next step
Try the free scenario calculator with hypothetical inputs, or compare more allocation examples. The methodology guide explains what the calculator does and does not test.
Sources & further reading
- Treasury Regulation §1.401(a)(4)-8: cross-testing and the gateway
- Treasury Regulation §1.401(a)(4)-2: contributions and rate groups
Educational content updated September 18, 2026. Examples are fictional; they illustrate funding choices and do not constitute final testing or plan-specific advice.