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Profit Sharing Plans
A Profit Sharing Plan is a Defined Contribution Plan that provides employees with contributions made by their employer. In its basic form, this type of plan is the easiest to administer and the easiest for employers and employees alike to understand. Depending on the objectives of the company however, various provisions may be added to the plan which could enhance the benefits received.
Advantages:
 | Flexible and discretionary employer contributions. |
| Contribution allocation
may be structured in various ways, such as: 1) Basic allocation of providing the same percentage or dollar amount to each participant; 2) Allocating the contribution on a Social Security Integrated basis, thereby skewing the benefit in favor of higher paid employees; 3) Allocating the contribution on a Cross-Tested basis, thereby skewing the benefit in favor of older employees (see Cross-Tested Plans) ; |
| May include a 401(k) employee deferral provision. |
| Least costly to administer in its basic form. |
Profit Sharing Plans are Ideal For:
| Employers wishing for discretionary contributions. |
| Employers with profit fluctuations. |
| Employers with limited resources. |
Disadvantages:
| If not structured properly, may fall short of providing maximum benefits available. |
Assuming the same contribution amount, following is an example of a Basic, a Social Security Integrated, and a Cross-Tested allocation:
| Age | Wages | Basic | Soc. Sec. Integrated | Cross- Tested |
|
| Owner | 54 | 200,000 | 27,703 | 30,728 | 40,000 |
| Spouse | 54 | 18,000 | 2,493 | 2,129 | 1,845 |
|
Subtotal |
218,000 | 30,196 | 32,857 | 41,845 | |
| Staff 1 | 41 | 18,000 | 2,493 | 2,129 | 900 |
| Staff 2 | 35 | 34,600 | 4,793 | 4,093 | 1,730 |
| Staff 3 | 53 | 17,000 | 2,355 | 2,011 | 850 |
| Staff 4 | 24 | 15,000 | 2,078 | 1,775 | 750 |
| Staff 5 | 50 | 25,000 | 3,463 | 2,957 | 1,250 |
| Staff 6 | 49 | 22,000 | 3,047 | 2,603 | 1,100 |
|
Subtotal |
131,600 | 18,229 | 15,568 | 6,580 | |
|
Grand Total |
349,600 | 48,425 | 48,425 | 48,425 |
How Complicated are
Profit Sharing Plans?
Without the proper
administrative services, a Profit Sharing Plan can turn into a nightmare for the
plan sponsor. The key to the success of a Profit Sharing Plan is the proper
designing of the plan. Although the plan design can be simple or
complicated, it should never be more complex than what is necessary to meet the
objectives of the plan sponsor.
Your plan will run smoothly and efficiently if it receives the careful and consistent attention of experienced plan administrators, with advanced computer support systems, working closely with your office staff. Our services include all functions necessary for the smooth operation of your plan, including Plan Design, Documentation, Employee Communication, and Complete Administration.
We have the expertise to determine if this type of Plan is for you!
Contact Us Today for a Free Consultation