A person can belong to one allocation group and appear in several testing rate groups. The names describe two different jobs.
Allocation groups set the proposed contributions
An allocation group is part of the plan’s contribution formula. A permitted design might have a group for each owner and another for staff. The employer selects contributions within the document’s terms, subject to the required tests.
| Group | Compensation | Employer rate | Contribution |
|---|---|---|---|
| Owner A, age 60 | $300,000 | 15% | $45,000 |
| Owner B, age 48 | $200,000 | 9% | $18,000 |
| Three staff, ages 27–36 | $150,000 combined | 5% each | $7,500 combined |
These labels describe how the $70,500 proposed contribution is divided. They do not tell you that the plan passes.
Testing rate groups make the comparison
In benefits-based testing, the provider calculates equivalent benefit rates. A testing rate group associated with an HCE includes that HCE and the employees whose applicable rates meet or exceed the comparison rate. The resulting groups are tested under the relevant rules.
The 5% staff allocation may translate into a higher equivalent benefit rate than an older owner’s 15% allocation because the staff have longer to the testing age. The same staff member can help satisfy more than one HCE’s rate group.
Why the younger owner can drive the cost
In the table, Owner B is younger. Even with a lower allocation percentage, that owner’s equivalent benefit rate may be a more difficult comparison for some employees. You cannot identify the hardest rate group by looking only for the largest dollar contribution.
Ask which HCE’s rate group is limiting the proposal and which employee adjustments would resolve it. That tells you why a revised allocation costs more.
How to read the report
Request an allocation schedule first: names or participant IDs, compensation, contribution sources and dollars. Then request the testing summary that explains the rate groups and outcomes. Keep those two views side by side.
If a provider proposes more allocation groups, ask what objective the added flexibility solves. More groups may help address different owner targets, but they do not create extra contribution room or remove any testing requirement.
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)-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.