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Integrated Profit Sharing Plans

A variation of the standard profit sharing plan is to integrate the plan’s allocation formula based upon the social security taxable wage base (currently $94,200 for the year 2006), or some other compensation level. All employees earning less than this integration amount receive a base pro rata allocation, while those earning more than the taxable wage base are eligible to receive an additional allocation (potentially as much as 5.7% of the excess compensation).

The rationale for the permissibility of this additional contribution is that such employees do not have the benefit (if you want to call it that) of the employer’s social security contribution portion on their excess compensation, so the employer is permitted to pay that amount into the plan under the integrated profit sharing formula.

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Information is provided for review and consideration only. Please consult legal and tax advisors for practical advice pertaining to your business and personal situations.

This page was last reviewed and/or updated on Friday, March 12, 2010 05:14 PM

 
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