What do age-weighted profit sharing plans typically favor?

Age-weighted profit sharing plans are designed to allocate contributions based on the age of participants, which inherently benefits older employees more significantly than younger ones. This is because the plan weights contributions with the premise that older employees are closer to retirement and therefore may require a larger amount saved to meet their retirement goals.

In these plans, the contribution formula considers both the employee's age and compensation, leading to a situation where older employees usually receive a higher percentage of the total contribution compared to their younger counterparts. This design encourages greater retirement savings for those who may have fewer years left to accumulate benefits, aligning the contributions more closely with the participants' needs as they approach retirement.

In contrast, new hires and younger employees may not receive the same level of benefit because their contributions are calculated with a lower weighting, reflecting their longer path to retirement. Hence, the structure of age-weighted profit sharing plans naturally favors older participants in the organization, enabling them to accumulate more significant retirement savings as they draw closer to their retirement age.