Allocation & Contribution Comparisons
Among profit sharing plans, there are multiple allocation formulas available for the
employer non-elective contribution. For example, to list a few:
- Non-integrated.
- Integrated.
- Age-Weighted.
- Comparability "Cross-Tested".
These formulas can be effective tools in achieving the business objectives of owners,
managers, and directors. Various designs can accomplish lucrative deposits for the
owners and managers of a company. Sometimes the tax savings on the total
contribution can be close to the amount of funds provided to other employees.
Illustrated below are examples of an allocation of $54,000 using the above formulas for a
hypothetical company census.
|
ABC Company - Sample Employee Census
| Participant Name |
Title |
Annual Salary |
Current Age |
| Owner Employee |
Owner |
$200,000 |
47 |
| Manager A |
Manager |
$60,000 |
43 |
| Manager B |
Manager |
$45,000 |
37 |
| Helper A |
Staff |
$28,000 |
32 |
| Helper B |
Staff |
$32,000 |
22 |
| Helper C |
Staff |
$34,000 |
25 |
| Helper D |
Staff |
$27,000 |
32 |
| Helper E |
Staff |
$30,000 |
46 |
| Receptionist |
Staff |
$24,000 |
24 |
ABC Company - Sample Comparison of Allocation Formulas
| Participant Name |
Non-Integrated Formula |
% of Total |
Integrated Formula |
% of Total |
Age-Weighted Formula |
% of Total |
Comparability “Cross-Tested”
Formula |
% of Total |
| Owner Employee |
$22,500 |
41.7% |
$26,327 |
48.8% |
$33,166 |
61.4% |
$40,000 |
74.1% |
| Manager A |
$6,750 |
12.5% |
$5,930 |
11.0% |
$6,719 |
12.4% |
$3,000 |
5.6% |
| Manager B |
$5,063 |
9.4% |
$4,447 |
8.2% |
$2,931 |
5.4% |
$2,250 |
4.2% |
| Helper A |
$3,150 |
5.8% |
$2,767 |
5.1% |
$1,191 |
2.2% |
$1,400 |
2.6% |
| Helper B |
$3,600 |
6.7% |
$3,163 |
5.9% |
$960 |
1.8% |
$1,600 |
3.0% |
| Helper C |
$3,825 |
7.1% |
$3,360 |
6.2% |
$1,020 |
1.9% |
$1,700 |
3.2% |
| Helper D |
$3,038 |
5.6% |
$2,668 |
4.9% |
$1,149 |
2.1% |
$1,350 |
2.5% |
| Helper E |
$3,375 |
6.3% |
$2,965 |
5.5% |
$6,144 |
11.4% |
$1,500 |
2.8% |
| Receptionist |
$2,700 |
5.0% |
$2,372 |
4.4% |
$720 |
1.3% |
$1,200 |
2.2% |
| Totals |
$54,000 |
100.0% |
$54,000 |
100.0% |
$54,000 |
100.0% |
$54,000 |
100.0% |
Notes:
- With the comparability "cross-tested"
formula above, the plan would need to meet "Top Heavy" minimums
providing this was the first plan year deposit.
- To find out more about various allocation strategies for your business, please feel free
to call us. We'll fax you an employee census form and business objective
questionnaire for completion. We'll share with you various plan designs that target
your business goals.
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