Accredited Wealth Management Advisor Practice Exam

What type of retirement plan would be most appropriate for a company where the owner is significantly older than the other employees?

1. SARSEP

2. Cross-tested ESOP

3. Target benefit plan

4. Age-weighted profit sharing plan

The correct answer is: Age-weighted profit sharing plan

In a situation where the owner of a company is significantly older than the other employees, an age-weighted profit sharing plan becomes particularly suitable due to its design that recognizes the differences in age and potentially differing retirement needs. This type of plan allows for contributions to be weighted according to the age of the participants. As a result, older employees (like the owner) can receive a larger proportion of the contributions to their retirement accounts compared to younger employees. This approach addresses the retirement savings gap that may exist between older and younger employees, allowing the older owner to catch up on retirement savings that may be needed sooner due to a shorter time horizon before retirement. In the context of other retirement plan options, a SARSEP is generally not suitable for businesses with more than 25 employees, and its overall contribution limits are lower. A cross-tested ESOP can provide some benefits as well, but it requires the company to meet specific operational criteria and can be more complex in structure. A target benefit plan can also be appropriate for certain situations, but it typically requires more actuarial calculations and may not have the same straightforward application as an age-weighted profit sharing plan in terms of balancing contributions based on participant ages. Overall, the age-weighted profit sharing plan emphasizes the