Added Flexibility With a Cross-Tested Formula for Your Profit Sharing Plan
In a traditional profit Sharing plan, typically owners and employees share the same percentage of their salary for the contribution. However, using either a cross-tested or age-weighted formula provides owners with more options in how the contribution amount is divided among employees based on objective criteria. For example, the owner may divide employees by job classifications and ownership or by age, subject to nondiscrimination testing.
The business owner may prefer that not everyone receive the same share. Age-weighted formulas allow higher contributions for older employees who are closer to retirement age. Two or three groups may be created with each group receiving a different allocation. The objective of the owner is of primary importance. The options available under these plans are significant.