Age-weighted profit-sharing plans may benefit small companies.Age-weighted profit-sharing plans Profit-Sharing Plan A plan that gives employees a share in the profits of the company. Each employee receives into an account, a percentage of those profits based on their earnings. Also known as "deferred profit-sharing plan" or "DPSP". 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 Safe Harbor 1. A legal provision to reduce or eliminate liability as long as good faith is demonstrated. 2. A form of shark repellent implemented by a target company acquiring a business that is so poorly regulated that the target itself is less attractive. for computing computing - computer 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 plans, but the proposal was ultimately deleted Deleted A security that is no longer included on a specified market. Sometimes referred to as "delisted". Notes: Reasons for delisting include violating regulations, failing to meet financial specifications set out by the stock exchange and going bankrupt. . An age-weighted formula is one method of restoring a profit-sharing allocation to older, more highly compensated employees who may otherwise have their benefits reduced because.plan compensation is now limited to $150,000. However, an age-weighted formula could trigger "top-heavy" minimum contributions and faster vesting schedules Vesting Schedule Schedule setting forth when, and to what extent, options become exercisable or restricted stock or stock units are no longer subject to forfeiture (for example, 20% per year over five years). under Sec. 416 if the total account balances of key employees exceed 60% of the total account balances of all employees (Sec. 416(g)(1)(a)(ii)). |
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