Individual allocation groups can let the employer choose different contributions for different participants, when the plan document permits it and the final allocation passes testing.
What an individual group means
Some new comparability documents place each participant in a separate allocation group. Others define broader categories. Separate groups can be useful when two owners want different amounts or a targeted employee contribution would help the overall design.
This flexibility is a plan provision. It is not something created just by putting separate rows in a spreadsheet. The formula and employer decisions must follow the governing document.
Example: different goals for two owners
| Participant | Eligible compensation | Requested contribution | Rate |
|---|---|---|---|
| Senior owner, age 60 | $300,000 | $45,000 | 15% |
| Newer owner, age 48 | $200,000 | $18,000 | 9% |
| Employee, age 30 | $60,000 | $3,000 | 5% |
The owners do not want a uniform 15% allocation: that would give the newer owner $30,000 rather than $18,000. Separate permitted groups allow the provider to model the requested amounts. This abbreviated illustration omits the rest of the census and is not a testing result.
Flexibility does not mean unlimited discretion
The highest HCE rate still affects the common gateway. Every relevant HCE testing rate group must work. Annual limits, coverage and top-heavy obligations still apply. An owner’s decision to take less does not automatically lower the contribution required for every employee.
The provider might recommend a targeted increase for one employee rather than the same increase for everyone. Whether that is available and effective depends on the document and testing, not just the business’s preference.
Before changing the formula
- Confirm whether the current document already permits individual groups.
- Ask who documents the employer’s annual allocation decision.
- Confirm any amendment timing and effective-date requirements.
- Get a final participant-level allocation schedule that the recordkeeper can administer.
Keep a simple communication goal: employees should understand their own contribution and applicable vesting, even if the back-end testing is more detailed.
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 §1.401-1: qualified plan requirements
- Treasury Regulation §1.401(a)(4)-2: contributions and rate groups
- Treasury Regulation §1.401(a)(4)-8: cross-testing and the gateway
Educational content updated September 18, 2026. Examples are fictional; they illustrate funding choices and do not constitute final testing or plan-specific advice.