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What is an Age-Weighted Retirement Plan?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 22 August 2016
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As a fairly recent innovation in the choices for designing a corporate retirement plan, the age-weighted retirement plan adds a new component to the process of calculating contributions to a retirement plan. Instead of basing the contributions on the annual salary or wages of the employee, the current age of the employee is also taken into consideration. Here is some information about how the age-weighted retirement plan works.

One of the important aspects of the age-weighted retirement plan to understand is that the financing of the plan involves profit sharing among eligible employees. From this perspective, each employee enrolled in the retirement plan has a great deal of say in how the plan functions. Employees with this sort of age-weighted profit sharing program still have some leeway in the direction of investments and can still allow Social Security integration. Management of retirement plans of this nature still has to follow the same type of limitations on the amounts of contributions by the employer, and the same rules of nondiscrimination that any profit sharing plan has to observe.

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What age-weighted retirement plans that follow this profit sharing model bring into the picture is the change to reward older employees for the benefit of their service and collective expertise, by creating a model that allows a larger percentage of profits to be directed into their individual plan. Instead of adding a fixed percentage of the annual salary to the individual age-weighted plan, the company would factor in the age of the employee. The result would be that an employee aged 55 would receive a retirement plan contribution of roughly eighteen percent of his or her annual gross salary. An employee aged 30 making the same annual gross salary would receive on average a contribution that would be in the one percent range.

One of the benefits to retirement plans of this nature is that it encourages long time employees to remain with the firm until retirement age. The advantage for the company is the chance to keep the experience and expertise of the employee as part of the company’s resources. For the employee, the fact that not only is there a chance for further salary increases, but also percentage increases in the amount of funds that go into the retirement plan each year, is a great incentive for sticking around a few more years.

While the age-weighted retirement plan is still a new concept, there are a number of corporations that have chosen to switch to this type of retirement plan structure. At a time when many companies are beginning to recognize the importance of the combination of skills and experience that older employees bring to a business, this concept of an age-weighted retirement plan to reward employees for that life experience and expertise only makes sense.

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Discuss this Article

Heavanet
Post 2

I agree with you Rundocuri. Without the help of a professional account adviser, I don't know how anyone can be sure he or she is making the right financial decisions for retirement.

Rundocuri
Post 1
This sounds like it may be a good plan for people who plan to work at least to age 65 and beyond. It seems like saving for retirement is so much more complicated than it used to be! With all of the individual retirement account rules, I think it is necessary to have a financial adviser to help you figure it all out.

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