Profit Sharing Plans

Profit Sharing Plan Basics

A profit sharing plan is generally the simplest type of retirement plan and allows for flexibility in employer contributions. Its main features are:

Profit Sharing Plan Reasons for Establishment: As a motivational tool for employees allowing for flexibility in the employer annual contribution.

Profit Sharing Plan Contribution Amount: Between 0 and 25% of total compensation of the participants. Amount need not be related to profits.

Profit Sharing Plan Allocation of Contribution Among Participants: If weighing of the allocation of the contribution more favorably to key employees is desired, sophisticated design techniques such as integration of the contribution with Social Security, or the use of an age-weighted or cross-tested profit sharing plan, should be considered.

Profit Sharing Plan Forfeitures: Added to contribution.

Profit Sharing Plan Investment: Can be pooled or individually directed.

Profit Sharing Plan Distributions: Can provide for in-service distributions in case of hardship.

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