Age-weighted profit-sharing plans may benefit small companies.

• Author: Warren, Joseph F., Jr.
• Position: Brief Article

Age-weighted profit-sharing plans allow contributions to be allocated on the basis of both relative compensation and age. Regs. Sec. 1.401(a)(4)-8(b)(2) provides a safe harbor for computing each participant's allocation of the company's contribution. Each participant is assigned a present value factor depending on age, with a factor of 1.0 for age 65. That factor is multiplied by relative compensation to arrive at an "allocation factor." The company's contributions are then allocated to each participant based on this factor.

The table on page 278 illustrates the potential benefits to older, highly compensated employees who participate in an age-weighted plan.

Legislation considered in 1994 would have eliminated age-weighted profit-sharing...