Profit Sharing Plans Overview
A Profit Sharing Plan is a plan where the employer elects to make a contribution on behalf of all the employees in the plan, based on each employee’s compensation.
The contribution is discretionary and can be determined from year-to-year. Profit Sharing contributions may be subject to a vesting schedule and Profit Sharing Plans often contain a 401(k) feature. |
Who May Adopt?
Employers of all sizes.
Employee Eligibility Requirements
Maximum Requirements: Age 21 and 2 years (1,000 hours) of service. Less restrictive requirements are allowed.
Employee Deferral Contributions
Not permitted.
Employer Matching Contributions
Not permitted.
Employer Profit Sharing Contributions
Discretionary formulas allowed based on either non-integrated (comp-to-comp) formula or integrated (social security wage base) formula. Plans may also provide that employees must be employed on the last day of the plan year and must work up to 1,000 hours to receive a contribution.
Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages. Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).
Are Catch-up Contributions Allowed?
No.
Contribution Deadlines
Employer contributions must be made by the employer’s tax filing deadline, including extensions.
Vesting Schedule
If a two (2) year eligibility service requirement is elected, employer contributions are 100% vested immediately. If a one (1) year or less eligibility service requirement is elected, employer contributions may be subject to a vesting schedule which must be defined in the plan document.
Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement. Plans may elect to allow hardship or in-service withdrawals. Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.
Administration & Reporting Requirements
Top-heavy and non-discrimination testing required. Form 5500 filing required. Fidelity Bond required.
Employers of all sizes.
Employee Eligibility Requirements
Maximum Requirements: Age 21 and 2 years (1,000 hours) of service. Less restrictive requirements are allowed.
Employee Deferral Contributions
Not permitted.
Employer Matching Contributions
Not permitted.
Employer Profit Sharing Contributions
Discretionary formulas allowed based on either non-integrated (comp-to-comp) formula or integrated (social security wage base) formula. Plans may also provide that employees must be employed on the last day of the plan year and must work up to 1,000 hours to receive a contribution.
Maximum Annual Contributions
Employer contributions are limited to 25% of participant wages. Employee annual additions are limited to the lesser of 100% of compensation or the annual limit stipulated by the IRS (see retirement plan limits).
Are Catch-up Contributions Allowed?
No.
Contribution Deadlines
Employer contributions must be made by the employer’s tax filing deadline, including extensions.
Vesting Schedule
If a two (2) year eligibility service requirement is elected, employer contributions are 100% vested immediately. If a one (1) year or less eligibility service requirement is elected, employer contributions may be subject to a vesting schedule which must be defined in the plan document.
Withdrawals and Loans
Withdrawals permitted only upon termination, death, disability or retirement. Plans may elect to allow hardship or in-service withdrawals. Plans may elect to allow plan loans and must specify the parameters under which a participant can take a loan.
Administration & Reporting Requirements
Top-heavy and non-discrimination testing required. Form 5500 filing required. Fidelity Bond required.