Who adopts a Profit Sharing Plan?
Companies that want greater flexibility in contributions will adopt a profit sharing plan over a defined benefit plan. Contributions to a profit sharing plan are made by the employer only and are discretionary. This is an especially good plan if cash flow is an issue. All 401(k) plans are profit sharing plans. Companies that want to adopt a 401(k) plan technically want a profit sharing plan with a 401(k) arrangement. The 401(k) arrangement allows employees to contribute to the plan by salary reduction. Highlights: If you do make contributions, you will need to have a set formula for determining how the contributions are divided. There are basically three methods of determining each participants allocation in a profit sharing plan. • Same percentage of compensation for each participant also known as the “comp-to-comp” method • Permitted disparity (Social Security Integration) • Age-weighted If you establish a profit-sharing plan, you: Can have other retirement plans. Can be a business o
