written by Aaron Henry
This is the fifth article in our Retirement series. It will be split into two parts, click here to read part 1. This article will provide an overview of popular employer-sponsored retirement plans to help you make the best decision for your business.
Profit-Sharing Plans
Profit-sharing plans are defined contribution plans that allow the employer to decide from year to year whether or not they are going to contribute to the plan. If you do contribute, you must have a set formula or method, usually based on salary, to distribute the profit among the participants. Employers implement this plan for several reasons:
- Employer contributions are discretionary; the employer has all the power on whether or not to contribute and how much.
- The plan is often attached to a 401(k), allowing for employee contributions and earnings to be nontaxable until distributed.
- Deferrals can grow through investments in stocks, bonds, mutual funds, etc.
- Employers have flexibility in designing the plan.
- The plan can be beneficial for employees of all ranks, from staff to owners.
- Participants can usually take their benefits with them if they discontinue service.
- It is a great plan if cash flow is an issue.
- Participant loans and hardship withdrawals are optional and provide flexibility for participants.
This overview is not intended to be all-encompassing and therefore does not delve into the advanced details and differences, as well as other types of plans that are not quite as popular, including money purchase plans and defined benefit plans. The Whitlock Company staffs several professionals who focus on audit, consulting, and administrative services for businesses with employee benefit plans. They receive ongoing compliance training in new developments and strategies, so our clients receive the most current information available.
If you are interested in more detailed information about employer-sponsored retirement plans, please contact us at 417-881-0145.
