Age-Weighted Profit-Sharing Plan

Age-Weighted Profit-Sharing Plan

A plan by which an employer distributes a set percentage of the company's profits to its employees' retirement accounts, with older employees receiving more. That is, a company sets up a series of accounts for employees and places a portion of its profits in them until employees retire. Under an age-weighted profit-sharing plan, accounts for older employees receive a larger amount each time the company makes a distribution. The company divides up the distributions in such a way that the older employees (who are closer to retirement) and the younger employees (whose account will benefit more from compound interest) will receive the same amount from the profit-sharing following retirement. The idea behind any profit-sharing plan is to give employees an incentive to work for the company's profitability.
References in periodicals archive ?
The age-weighted profit-sharing plan relies on a contribution allocation technique that evolved from the "cross testing" rules set forth in Sec.
This results in higher contribution allocations for older employees, a technique that is becoming known as an age-weighted profit-sharing plan.
A similar rate group testing method applies for testing benefits under the general test--the test that must be satisfied in an age-weighted profit-sharing plan.
Cross-tested and age-weighted profit-sharing plans also focus allocations on older employees and are generally less expensive to administer than defined-benefit plans, although deductions are limited to 25% of compensation.
Legislation considered in 1994 would have eliminated age-weighted profit-sharing plans, but the proposal was ultimately deleted.