Ideal Salary & Points

Duration: 60 Min.

  • [Ideal Salary]
    For partnerships and sole proprietorships, calculating contributions is more challenging since these businesses might not use regular compensation, but rather another calculated basis called “ideal salary.” Partnerships and Sole proprietorships are business owned by individuals who do not own stock, but rather own a share of the capital or profit interest of the business. Instead of the businesses and the owners being taxed separately, the partners or proprietors are taxed on their share of the business income as if it were personal income. This “earned income” has to be calculated for the partners or proprietors in order to establish the basis for employer contribution amounts for the business owners. That calculated basis is known as the “ideal salary.” It is a very complex and exact process. Fortunately, Relius Administration will
    perform this calculation right along with the processing of the employer contribution.
    For employer allocations, weighting factors can be applied to determine who should receive what share of the contribution amount. These points can be assigned based on Compensation and then combined with other assigned points based on years of service, years of plan participation or even age. In this way, a larger share of the employer contribution can be allocated to those participants who have been employed the longest or who have been participating the longest, or simply the older participants. One of the reasons behind these types of formulas is that employees who have worked for the company longer should be rewarded for that service. Another reason—the one for age-based allocations—is that older employees don’t have as much time left to accrue retirement benefits, and thus should receive more now.
    In this session, we will:
    [Ideal Salary]
    • properly set up the employer & plan for Ideal Salary calculations
    • properly code the partners / proprietors in census
    • calculate the Ideal Salaries
    • calculate the contribution amounts based on this result
    • account for other contributions and other income
    • use Ideal Salaries in other situations such as Top-Heavy plans and Safe Harbor plans.
    • set up point allocation formulas using compensation with service and with participation
    • set up age-weighted formulas
    • process contributions using these formulas
    • examine some of the compliance testing requirements of these types of allocation formulas

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