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Age Weighted Plans
Plan Year 2010 |
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Age-weighted
profit sharing plans resemble traditional
profit sharing plans with one important
exception: the way the employer contribution
is allocated to each participant's account.
Traditional
profit sharing plans usually allocate the
employer contribution in proportion to
compensation. Age-weighted plans use
compensation and the participant's age when
allocation the contribution. This formula
results in a significantly larger allocation
of the contribution to employees who are
closer to retirement age. Age-weighted profit
sharing plans combine the flexibility of a
profit sharing plan with the ability of a
pension plan to skew benefits in favor of
older employees.
The "Economic
Growth and Tax Reconciliation Act of 2001",
signed into law on June 7, 2001, will have a
substantial affect of qualified plans. Listed
below is information provided for the 2004
plan year, using the limits put into place by
the new tax law.
The 2001 law
provided a higher compensation level and
higher contribution percentage (25% of
compensation rather than 15%).) In this
example, we have used a contribution of
$130,771, which is the amount needed in order
for Officer/Shareholder #1 to receive a $49,000 contribution in
an Age Weighted Plan. Note the difference in
the amount required to be funded in the Traditional and
Integrated Plans in order for Officer/Shareholder #1 to
receive the full $49,000.
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Plan Comparative Analysis – 2010 Year |
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Name |
Age |
Income |
Traditional |
Integrated |
Age Weighted |
New Comp |
SEP |
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Officer/Shareholder # 1 |
50 |
$245,000.00 |
$49,000.00 |
$49,000.00 |
$49,000.00 |
$49,000.00 |
$49,000.00 |
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Officer/Shareholder # 1 |
57 |
$245,000.00 |
$49,000.00 |
$49,000.00 |
$49,000.00 |
$49,000.00 |
$49,000.00 |
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Group A |
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$490,000.00 |
$98,000.00 |
$98,000.00 |
$92,000.00 |
$98,000.00 |
$98,000.00 |
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Manager |
50 |
$75,000.00 |
$15,000.00 |
$12,588.55 |
$16,275.00 |
$3,750.00 |
$15,000.00 |
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Group B |
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$75,000.00 |
$15,000.00 |
$12,588.55 |
$16,275.00 |
$3,750.00 |
$15,000.00 |
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Staff # 1 |
34 |
$25,000.00 |
$5,000.00 |
$4,196.18 |
$1,470.70 |
$1,250.00 |
$5,000.00 |
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Staff # 2 |
21 |
$20,000.00 |
$4,000.00 |
$3,356.95 |
$ 407.41 |
$1,000.00 |
$4,000.00 |
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Staff # 3 |
29 |
$23,000.00 |
$4,600.00 |
$3,860.49 |
$ 899.84 |
$1,150.00 |
$4,600.00 |
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Staff # 4 |
40 |
$30,000.00 |
$6,000.00 |
$5,035.42 |
$2,879.28 |
$1,500.00 |
$6,000.00 |
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Staff # 5 |
40 |
$40,000.00 |
$8,000.00 |
$6,713.89 |
$3,839.04 |
$2,000.00 |
$8,000.00 |
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Staff # 6 |
49 |
$35,000.00 |
$7,000.00 |
$5,874.66 |
$7,000.00 |
$1,750.00 |
$7,000.00 |
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Group D |
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$173,000.00 |
$34,600.00 |
$29,037.59 |
$16,496.26 |
$8,650.00 |
$34,600.00 |
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Total |
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$738,000.00 |
$147,600.00 |
$139,626.14 |
$130,771.26 |
$110,400.00 |
$147,600.00 |
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Group A % |
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65.16% |
66.40% |
70.19% |
74.94% |
88.77% |
66.40% |
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Group B % |
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10.62% |
10.16% |
9.02% |
12.45% |
3.40% |
10.16% |
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Group D % |
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24.22% |
23.44% |
20.80% |
12.61% |
7.84% |
23.44% |
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06/21/2010 |