Contrary to its name, profit sharing plans do not require an employer to have profits in order to make contributions. The name is carried over from earlier law that did require the contribution to come from current or accumulated profits. No longer subject this requirement, profit sharing plans enjoy similar flexibility and discretion as 401(k) plans.
Characteristics of a Profit Sharing Plan
While profit sharing plans can be standalone arrangements, often they are paired with a 401(k) component in order to provide the employer and employees maximum flexibility in structuring their retirement savings strategy.
Employers appreciate that the contribution level can be varied each year. Profit sharing contributions are a great alternative to paying bonuses, since the contributions are not subject to payroll tax. This means tax savings for both the employer and the employee.
As a retention tool, employers can use a vesting schedule to give employees an incentive to stay with the company.
To determine if a Profit Sharing plan is the right plan for you, contact one of our Pension Consultants, or complete our online Proposal Request Form. Your Pension Consultant can guide you to a plan that fits your idea of retirement.
Profit Sharing Plan Executive Summary