An age-based profit sharing plan is a profit sharing plan that uses both age and compensation as a basis for allocating employer contributions among plan participants. This concept is similar to a target benefit plan, where age and compensation are factors used to determine the amount of the employer contribution.

All of the basic requirements that apply to regular profit sharing plans also apply to an age-based profit sharing plan. An age-based profit sharing plan can have a discretionary contribution formula and provide the employer with flexibility over the amount of the contribution to be made each year. Because age is a factor, this type favors older employees who have fewer years than younger employees to accumulate sufficient funds for retirement. For purposes of satisfying the nondiscrimination requirements, an age-based profit sharing plan is tested under the cross-testing rules.