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.

Answer rating: 100% (QA)

To fill in the missing information in the table we need to calculate the ageweighted compensation an... View the full answer