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The Safemore Company has 3 employees. Assume it has an age-based profit sharing plan. The employees are listed below, along with covered compensation. Assume that
The Safemore Company has 3 employees. Assume it has an age-based profit sharing plan.
- The employees are listed below, along with covered compensation. Assume that the interest rate used to calculate the PV is 8.5%/year. Assume that the PV calculation is based on a normal retirement age of 65. The owner, employee A, wants the total dollar contribution to his plan be the maximum for 2023, $66,000, with the same percent of age weighted compensation applied to the age-weighted contribution of other employees.[1]
Fill in the rest of the table below.
employee | Age | Covered compensation | PV of $1 | Age-weighted compensation | % of total contribution | Dollar contribution |
A | 55 | $200,000 | ||||
B | 35 | $50,000 | ||||
C | 25 | $30,000 | ||||
total | $280,000 |
- What would be the effect on the percent of the contribution going to employee A of assuming an interest rate of 5%/year instead of 8.5%/year?
[1]Example: if contribution to Employee A's profit sharing plan amounts to 10% of his age-weighted compensation, the contributions to plans for Employee B and C should each amount to 10% of their age-weighted compensation.
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