Maximizing Contributions Received by Company Owners
For many small plans the name of the game is maximizing the contributions received by company owners while keeping total employer contributions to a minimum. Sometimes this can be done by simply changing the contribution allocation formula.
For example, the following is a comparison between a salary proportionate and age weighted allocation formula where the employer makes a $50,000 contribution.
Salary Proportionate Formula
- Participant
- A
- B
- C
- D
- E
- Status
- Owner
- Non-Owner
- Non-Owner
- Non-Owner
- Non-Owner
- Compensation
- $200,000
- $70,000
- $50,000
- $40,000
- $30,000
- Total
- Contribution
- $25,641.02
- $8,974.36
- $6,410.26
- $5,128.21
- $3,846.15
- $50,000.00
Age Weighted Formula
- Participant
- A
- B
- C
- D
- E
- Status
- Owner
- Non-Owner
- Non-Owner
- Non-Owner
- Non-Owner
- Age
- 58
- 47
- 42
- 39
- 28
- Total
- Contribution
- $39,818.88
- $5,236.01
- $2,487.27
- $1,557.84
- $900.00
- $50,000.00