Assume the Owners decide to make an annual contribution that would provide the maximum benefit for owners/shareholders under the current tax code provisions. Below is a comparison of the different types of plans available, and the various amounts required to provide the desired benefit.
Name | Age | Income | Traditional | New Comparability |
---|---|---|---|---|
Officer/Shareholder # 1 | 58 | $250,000.00 | $50,000.00 | $50,000.00 |
Officer/Shareholder # 2 | 41 | $250,000.00 | $50,000.00 | $50,000.00 |
Group A | $500,000.00 | $100,000.00 | $100,000.00 | |
Manager | 46 | $89,774.00 | $17,954.80 | $7,181.92 |
Group B | $89,774.00 | $17,954.80 | $7,181.92 | |
Staff #1 | 30 | $17,854.00 | $3,570.80 | $892.70 |
Staff #2 | 25 | $31,287.00 | $6,257.40 | $1,564.35 |
Staff #3 | 41 | $31,399.00 | $6,279.80 | $1,569.95 |
Staff #4 | 46 | $30,026.00 | $6,005.20 | $1,501.30 |
Staff #5 | 36 | $39,997.00 | $7,999.40 | $1,999.85 |
Staff #6 | 33 | $31,622.00 | $6,324.40 | $1,581.10 |
Staff #7 | 42 | $39,765.00 | $7,953.00 | $1,988.25 |
Staff #8 | 44 | $22,008.00 | $4,401.60 | $1,100.40 |
Staff #9 | 26 | $33,718.00 | $6,743.60 | $1,685.90 |
Group C | $277,676.00 | $55,535.20 | $13,883.80 | |
Total | $867,450.00 | $173,490.00 | $121,065.75 | |
Group A% | 57.64% | 57.64% | 82.60% | |
Group B% | 10.35% | 10.35% | 5.93% | |
Group C% | 32.01% | 32.01% | 11.47% |
The plan satisfies the non-discrimination regulations because the equivalent benefit percentages (i.e., the real value of the contributions on a future value basis) for all employees are the same.
Additional information can be found in our August 2013 Newsletter titled Cross-Testing: The Right Tool for Many Jobs.