We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.
Finance

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

What is an Age-Weighted Retirement Plan?

Malcolm Tatum
By
Updated: May 16, 2024
Views: 10,322
Share

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.

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.

Share
SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Malcolm Tatum
By Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing to become a full-time freelance writer. He has contributed articles to a variety of print and online publications, including SmartCapitalMind, and his work has also been featured in poetry collections, devotional anthologies, and newspapers. When not writing, Malcolm enjoys collecting vinyl records, following minor league baseball, and cycling.
Discussion Comments
By Heavanet — On Feb 10, 2014

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.

By Rundocuri — On Feb 10, 2014
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.
Malcolm Tatum
Malcolm Tatum
Malcolm Tatum, a former teleconferencing industry professional, followed his passion for trivia, research, and writing...
Learn more
Share
https://www.smartcapitalmind.com/what-is-an-age-weighted-retirement-plan.htm
Copy this link
SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.