The Perfect Plan - 2012 Plan year     

APC considers “The Perfect Plan” to be a 401(k) Safe Harbor Plan with a new comparability profit sharing allocation formula. A 5% of compensation contribution allows the “Highly Compensated” employees to maximize their 401(k) voluntary cash deferral ($17,000 for 2012 plus an extra $5,500 if you are age 50 or older) without regard to “Non-Highly Compensated” employees' deferral percentage. The new comparability allocation method uses the 5% of compensation safe harbor contribution in a way that provides the owner's group, in most cases, the ability to receive a maximum contribution of 100% of compensation or $50,000.

In summary, “The Perfect Plan” provides a 5% contribution for non-owner participants, has the employee benefit of a 401(k) plan, and allows owners to contribute the lesser of 100% of compensation or $50,000.

Key points:

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Greater contribution benefits to specific groups of employees.

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No stringent discrimination testing associated with traditional 401(k) plans.

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Popular plan with employees; they have more control over their retirement plan and flexibility regarding their participation.

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A 5% employee contribution can be used to satisfy both the 401(k) and profit sharing discrimination tests.

 

Age
Compensation
401(k) EE Deferral Contribution
Profit Sharing Contribution
Total Contribution
Key EE
48
$ 250,000
$ 17,000
$ 33,000
$ 50,000
Employee 1
24
$ 17,000
At Employee's Discretion
$ 850
$ 850
Employee 2
28
$ 30,000
At Employee's Discretion
$ 1,500
$ 1,500
Employee 3
32
$ 40,000
At Employee's Discretion
$ 2,000
$ 2,000
-
-
-
-
-
-
Totals
-
$ 337,000
$ 17,000
$ 37,350
$ 54,350