Profit Sharing Plans

Profit sharing plans enable an employer to determine each year if it wishes to make a contribution to assist employees in saving for retirement (and to annually determine an amount ranging from nothing to a maximum set by law), or alternatively to either set a flat dollar amount or percentage of compensation that it would like to contribute to its plan-eligible employees. In addition, an employer can define eligibility for its plan in a number of different ways and can also vary its contribution formula within certain parameters. A profit-sharing plan often is used to incent organization-wide performance and profitability. Interestingly, even not-for-profit entities are allowed to create these plans, albeit using a different name.