Profit Sharing Plan

Plans

Profit Sharing Plan

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Profit Sharing Plans provide the most flexibility among qualified plans available. With a Profit Sharing Plan, an employer can add up to 25% of total compensation to all eligible employees. An employer may allocate up to 100% of the participants’ compensation or $56,000 (indexed to the cost-of-living), whichever is less.

Unlike Defined Benefit Plans, employers are not required to make a contribution every year. In fact, many employers parallel the level of contribution to the profitability of the business, but an employer can still contribute regardless of the profitability.

Profit Sharing Plan Pros & Cons

The Pros of a Profit Sharing Plan

  1. Contribution flexibility – Employers can determine contribution amounts, if any, year to year
  2. Reallocation of Funds – Non-vested account balances aka “forfeitures” by terminated employees can be reallocated in one of three ways:
    • Used to reduce the next year’s contributions
    • Pay administrative fees
    • Re-allocated to remaining employees 99% of the time – forfeitures are used to reduce the next year’s contribution.
  3. Paired with Other Plans – Profit Sharing Plans can be paired with another plan, such as a Cash Balance Plan, to maximize retirement contributions.

Possible Cons of Profit Sharing Plan

  1. Maximum Contribution Levels – Other types of plans offer higher contribution levels than Profit Sharing Plans.

 

Third Party Administrators: PlanPerfect

Retirement plan design can help your business maximize retirement contributions while increasing tax deductions. Profit Sharing Plans allow a business flexibility with contributions. Explore our services and contact us today for a free consultation!