Basic Profit Sharing Plan. Contributions to a basic profit sharing plan are generally allocated to eligible employees in the same ratio as each participant's salary is to the total salary for the group. Contributions can be integrated with social security to provide a higher ratio of contributions to participants who earn more than the social security wage base.
Integrated Profit Sharing Plan. This type of allocation method is integrated with an overall retirement scenario that includes Social Security; this combination is called "permitted disparity". By providing for permitted disparity in its qualified retirement plan, the employer gets the benefit of its Social Security Tax payments.
Under an integrated Profit Sharing Plan, compensation is broken out into two parts; the amount above the integration level (excess compensation), and the amount below the integration level (base compensation). Usually the integration level is the Social Security Taxable Wage Base in effect for the applicable year.
Age-Weighted Profit Sharing Plan. As the name would suggest, age-weighted profit sharing plans take into consideration the age of participants, as well as compensation, when determining the amount to allocate to each participant. Older participants receive a proportionately greater share of the allocation than younger participants as compared to a basic profit sharing plan.
New Comparability. Also referred to as a cross-tested plan, a new comparability plan allows the employer to divide employees into several groups and allocate different contribution rates to each group.
These plans are required to pass complex discrimination tests in order to meet Internal Revenue Service requirements so the administration cost may be higher than other plan types. The advantage is that the employer may be able to contribute greater amounts for a select group of key employees, while minimizing the cost for other employees.
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