Age-Weighted Retirement Plan

An age-weighted retirement plan is a relatively new innovation that alters the process of calculating contributions to a retirement plan. The current age of the employee is taken into consideration when calculating his contributions. Financing this plan involves profit sharing among eligible employees, as each involved in this specific program have a say in how it functions. They have discretion in their investments and can allow Social Security integration. These plans essentially reward the older employees for the benefit of their collective expertise and service, as a model allows for more profits to go to their individual plan. A company will factor in the employee’s age, resulting in employees 55 or over receiving retirement plan contributions of 18% of their annual gross salary, whereas a 30 year old making the same annual gross salary would receive contributions of only 1%.

The greatest advantage of age-weighted retirement plans is that they encourage long-time employees to stay at the firm. The company gets to keep the expertise and experience of the employee, which is an important company resource. Companies have recently begun taking advantage of this plan because more and more realize that the skills an older employee brings to a group are a desired commodity. Of course, the employee benefits as well as his salary can increase and thus the percentage going to his retirement plan will increase as well. This is a great incentive for the employee to stay with the group.

Top Hat Plans

Top hat plans are not offered to most of the general employees of a corporation. Instead, only a limited number of individuals within a larger group of employees – for example, key executives – are offered these retirement plans. Top hat plans differ from standard retirement plans. There is no tax-qualified status that other retirement plans possess. Also, being a key executive is not necessarily enough to participate, as there may be other provisions that restrict otherwise qualified applicants.

There are two types of top hat plans. The first, the Non-qualified Deferred Compensation Plan, is a non-qualified retirement plan that allows participants to defer any amount of income annually; however, employers generally do not put in matching contributions. Second, the Supplemental Executive Retirement Plan mandates the employer provide the funding for annual contributions, and there are some limits such as annual salary that determine the exact amount of funding.

Top hat plans, unlike other retirement plans, do not have to comply with the same governmental regulation, which means the interest rate may be higher than with a traditional 401K. There may also not be penalties should the executive leave the company prior to retiring. It is also possible to bundle the actual cost of the plan in with the costs of other retirement plans offered by the company; as such, shareholders may not be able to identify the assets of the top hat plan.

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