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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.

  1. 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




  1. 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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