The concept behind these special profit sharing plans, which resulted from creative design applications of IRS regulations issued in the mid-1990s, is that greater benefits may be provided for older employees who have fewer years to accumulate retirement benefits than younger employees. An age-weighted plan or new comparability plan may either be a standalone profit sharing plan or the profit sharing contribution component of a 401(k) plan.
If your key employees are older than other employees and you want them to receive a larger proportion of the employer’s contribution than under the more traditional ways of allocating a discretionary contribution, an age-weighted plan may be appropriate. A new comparability plan refines this approach by dividing employees into two, three or more groups chosen by the plan sponsor, then determining contributions separately for each of these groups in a manner to maximize the benefits to the group(s) of employees who the employer wishes to reward the most for the year. A typical objective for a plan sponsor is to maximize the contributions for owners and more highly compensated employees, whose efforts more directly generate the profits to fund the plan contribution, while minimizing contributions for other employees.
Plan Design - We will consult with you regarding your benefits and financial objectives before loading employee data to illustrate how powerful this allocation method may work towards meeting your goals. If the results are favorable, we will then install the plan for you and obtain a favorable determination letter from the IRS.
Annual Plan Administration - Every year, we will work closely with you to optimize the allocation of the year’s contribution to favor those groups of employees which are targeted by you to benefit the most. This process involves a special actuarial nondiscrimination test which must be passed every year. If the nature or number of allocation groups needs to change to pass the test or to meet your changing objectives better, we can amend the plan to make sure it continues to be the best plan for you.