Profit Sharing Component

[Guest caseyb]

For those of you with an employer contribution based on a profit sharing component, what is the method you use - if the company hits x amount of pre-tax profit you contribute an additional x% to the participant's account? Based on revenue and not profit? Thanks

[401king]

Typical plan design will allow for profit sharing contributions even during a year in which the company has no profit. Formulas are generally based on employees' salaries, and often times not finalized until after year-end, once the company has had time to calculate how much they can afford. This allows greater flexibility in that in years in which the company has high profit, they may make a larger profit sharing contribution, and in years of low or no profit they are not required to make any contribution.

[Guest Sieve]

I have seen PSP formulas (ae?) based on percentages of profit, but not in decades. That can be an internal formula, described to employees to encourage them to do well so that management will make the discretionary PS contribution, but I would never put such a formula in a plan document/SPD. Such an internal formula can be put together in any way that is comfortable to management/owners, depending on the nature of the business, plans for capital improvements, etc., etc. Work with your CPA.