Technically a "discretionary employer contribution plan," the profit sharing plan (also called a progress sharing plan) is a defined contribution plan that gives businessowners the greatest flexibility in deciding whether or not to make contributions, and how much to contribute. Employer contributions to a profit sharing plan may fluctuate from year to year, since a profit sharing plan does not require a fixed contribution commitment. Instead, profit sharing plan contributions are determined and announced on an annual basis, and are usually tied to business profits, although this is not a legal requirement.
Profit Sharing Key Points:
- Discretionary employer contributions.
- Several different allocation options.
- Ideal for businesses not wanting to lock into a fixed contribution commitment
- Types of profit sharing allocations include per capita, non-integrated, integrated, age-weighted, and new comparability.
