Integrated Profit Sharing Plan

 

Integration of profit-sharing plans is a process of correlating the benefits or contributions provided by a company plan with Social Security benefits. This allocation method results in larger contributions for higher paid employees.

 

Employees who are earning compensation in excess of the Social Security Taxable Wage Base ($142,800 for 2021 indexed) accrue no government provided social security retirement benefits in excess of that amount. The Internal Revenue Code allows the private plan to provide additional allocations to employees based on their compensation above the Social Security Taxable Wage Base (up to the maximum dollar limit which may be considered by qualified plans, i.e. $290,000 in 2021).

 

Example:
A plan could provide a 10% contribution for all compensation up to $290,000 plus an additional 5.7% of compensation between $142,800 and $290,000. Total plan contributions are limited to 25% of total eligible payroll. Integrated plans favor highly compensated employees. The age of an employee will not make a difference. Integration levels below $142,800 (2021 - indexed) may be used by simply adjusting the maximum related excess percentage (5.7%) of allocation. Higher paid employees receive a larger contribution under integrated plans since earnings are capped for Social Security taxes.

 

Here are the maximum additional contribution percentage (Excess Percentage) based on the integration level:

 

  Integration Level

   Excess %

  100% of Taxable Wage Base (TWB)

 5.7 %

  TWB > Integration Level > 80% of TWB

 5.4 %

  80% of TWB > = Integration Level > 20% of TWB

 4.3 %

   Integration Level <= 20% of TWB

 5.7%