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Age-Weighted Plans
Plan Year 2008 |
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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
$56,477, which is the amount needed in order
for Joe to receive a $44,000 contribution in
an Age-Weighted Plan. Note the difference in
the amount Joe receives in the Age-Weighted
Plan versus Traditional Profit Sharing Plan
and Profit Sharing Integrated with Social
Security. |
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Plan Comparative Analysis – 2008 Year |
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Name |
Age |
Income |
Traditional |
Integrated |
Age Weighted |
New Comp |
SEP |
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Officer/Shareholder # 1 |
50 |
$230,000.00 |
$46,000.00 |
$46,000.00 |
$46,000.00 |
$46,000.00 |
$46,000.00 |
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Officer/Shareholder # 1 |
57 |
$230,000.00 |
$46,000.00 |
$46,000.00 |
$46,000.00 |
$46,000.00 |
$46,000.00 |
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Group A |
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$460,000.00 |
$92,000.00 |
$92,000.00 |
$92,000.00 |
$92,000.00 |
$92,000.00 |
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Manager |
49 |
$75,000.00 |
$16,517.00 |
$15,155.25 |
$14,886.12 |
$9,886.44 |
$16,517.00 |
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Group B |
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$75,000.00 |
$16,517.00 |
$15,155.25 |
$14,886.12 |
$9,886.44 |
$16,517.00 |
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Staff # 1 |
43 |
$18,000.00 |
$3,964.08 |
$3,637.26 |
$2,189.85 |
$900.00 |
$3,964.08 |
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Staff # 2 |
33 |
$25,000.00 |
$5,505.67 |
$5,051.75 |
$1,345.19 |
$1,250.00 |
$5,505.67 |
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Staff # 3 |
28 |
$23,000.00 |
$5,065.21 |
$4,647.61 |
$823.05 |
$1,150.00 |
$5,065.21 |
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Staff # 4 |
39 |
$30,000.00 |
$6,606.80 |
$6,062.10 |
$2,633.57 |
$1,500.00 |
$6,606.80 |
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Staff # 5 |
39 |
$40,000.00 |
$8,809.07 |
$8,082.80 |
$3,511.42 |
$2,000.00 |
$8,809.07 |
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Staff # 6 |
48 |
$35,000.00 |
$7,707.93 |
$7,072.45 |
$6,402.63 |
$1,750.00 |
$7,707.93 |
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Group D |
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$171,000.00 |
$37,658.75 |
$34,553.97 |
$16,905.71 |
$8,550.00 |
$37,658.75 |
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Total |
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$706,000.00 |
$146,175.75 |
$141,709.22 |
$123,791.83 |
$110,436.44 |
$146,175.75 |
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Group A % |
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65.16% |
62.94% |
64.92% |
74.32% |
83.31% |
62.94% |
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Group B % |
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10.62% |
11.30% |
10.69% |
12.03% |
8.95% |
11.30% |
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Group D % |
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24.22% |
25.76% |
24.38% |
13.66% |
7.74% |
25.76% |
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01/12/2006 |