Pro rata uses one percentage of compensation. New comparability can use different percentages, but the comparison should hold either the owner target or the total budget constant.
How each formula divides the money
With pro rata, a 10% contribution means $10,000 for someone earning $100,000 and $5,000 for someone earning $50,000. The dollar amounts differ; the percentage is the same. New comparability can assign different percentages to permitted allocation groups, then test the outcome.
Neither formula changes the fact that the employer must fund the contributions. A higher owner allocation is retirement savings funded by the business, not free money.
Comparison 1: keep the owner contribution the same
| Participant | Compensation | Pro rata | New comparability |
|---|---|---|---|
| Owner, age 58 | $300,000 | 15% / $45,000 | 15% / $45,000 |
| Employee A, age 30 | $60,000 | 15% / $9,000 | 5% / $3,000 |
| Employee B, age 35 | $50,000 | 15% / $7,500 | 5% / $2,500 |
| Employee C, age 40 | $40,000 | 15% / $6,000 | 5% / $2,000 |
| Total | $450,000 | $67,500 | $52,500 |
At the $45,000 owner target, the illustrated new comparability allocation reduces employee funding by $15,000. It does not increase the owner’s contribution.
Comparison 2: keep the total budget the same
Now give that same business a fixed $50,000 budget. Its total compensation is $450,000, so a pro rata allocation uses an approximately 11.11% rate.
| Recipient | Pro rata | Illustrated new comparability |
|---|---|---|
| Owner | $33,333.33 | $42,500 |
| Three employees, combined | $16,666.67 | $7,500 |
| Total employer contribution | $50,000 | $50,000 |
The owner’s share rises by $9,166.67 while employer spending stays the same. The proposed owner rate is about 14.17%; the 5% staff allocation exceeds the approximately 4.72% gateway. The full allocation still needs testing.
Illustration assumptions: A standalone defined contribution plan; all people shown are eligible for the illustrated employer contribution; owners and other specifically identified HCEs are highly compensated employees; remaining staff are non-highly compensated employees (NHCEs). Compensation is eligible plan compensation. Employer dollars include any safe harbor nonelective contribution; employee deferrals, catch-ups, matching contributions and fees are excluded unless stated. These are fictional planning examples, not completed nondiscrimination tests. Final allocations may differ.
Which approach fits the business?
Pro rata is easy to explain and may work well when the goal is a uniform benefit. New comparability is worth investigating when owners have different savings goals or the business wants to target contributions more selectively.
Compare fees and administration too. A small funding improvement may not justify added complexity. Ask the provider to show a no-change option alongside the proposed design and to identify any employees whose contributions would change.
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
- IRS: choosing a profit-sharing plan
- 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.