Lesson 7 Profit-Sharing Plans
Profit-sharing plans are a type of defined contribution plan almost identical to Money Purchase Pension Plans (MPPP), except that the sponsor is not required to make a fixed annual contribution. In a good year, they can increase contributions, and in a bad year, they can reduce or suspend them. This kind of flexibility is important to many businesses. It encourages companies that otherwise might be reluctant to assume a fixed regular contribution formula to start and maintain plans.
Profit-sharing contributions can create and maintain morale by rewarding the entire employee group for productivity gains, cost savings initiatives, or meeting other corporate goals. Properly employed, they can be a powerful incentive ...
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