What must organizations do regarding discretionary contributions in cross testing?

Discretionary contributions in cross-testing can indeed be made to each group within a qualified plan. Cross-testing is a method utilized by organizations that allows them to test the plan's benefits for different groups of employees, often based on their classification, such as age or compensation. Under this system, companies can allocate contributions or benefits flexibly, allowing them to enhance the retirement savings of employees in targeted categories while adhering to the nondiscrimination requirements set forth by the IRS.

The key aspect of cross-testing is that it provides a way to demonstrate that the plan does not disproportionately favor highly compensated employees when contributions are made. Therefore, by allowing discretionary contributions to be made to each group, organizations can optimize their strategies for areas that require greater savings without breaching compliance rules regarding discrimination.

This approach stands in contrast to the idea that contributions must be equal across all groups or constrained to the highest earning group. Such restrictions could limit flexibility and might also lead to compliance challenges regarding the nondiscrimination rules that the IRS enforces.