Age Weighted Plan

Many companies are recognizing the value of switching to an age weighted retirement plan in order to provide encouragement to the older, more experienced employees at the company to continue working for them.

Age Weighted Plan Definition

The age weighted plan is a type of retirement plan that offers some of the best flexibility for a company whose workers are of a variety of ages. In an age weighted plan, the IRS allows certain employees who are closer to retirement age to contribute to their account at higher rates than those who are further away from retirement, without losing the flexibility of standard profit-sharing incentives.

With standard target benefit plans and defined benefit plans, employers a required to make a minimum contribution to an employee’s account; but with an age weighted plan, the employer’s maximum contribution is calculated as a percentage of the employee’s total compensation.

This alleviates the imbalance of standard profit sharing plans in which younger employees end up having more contributions made by the employer than older employees, particularly since younger employees are typically more interested in today’s earnings than tomorrow’s savings.

Benefit of Age Weighted Plans

Because of the regulations governing age weighted plans that limit employer contributions to a certain percentage, the plan makes it easier for employers to provide an adequate amount of profit sharing to older employees. The rules dictate that a maximum deductible contribution by the employer is 15% of the employee’s total compensation and the maximum contribution is capped at 25% or $30,000.

Since employers are required to make much smaller contributions to the retirement accounts of younger employees, larger contributions are available to older employees. The younger employee will still enjoy the same retirement benefit because their account will have a longer period of time to accumulate value.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...
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