profit sharing

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Related to Profit sharing plan: Deferred Profit Sharing Plan

Profit Sharing

A plan by which an employer distributes a set percentage of the company's profits to its employees. Employers may distribute the portion of its profits immediately (that is, employees may receive what amounts to a bonus) or it may set up a series of accounts for employees and defer the profit sharing until employees retire. The idea behind profit sharing is to give employees an incentive to work for the company's profitability. See also: DPSO, ESOP.

Profit sharing.

A profit-sharing plan is a type of defined contribution retirement plan that employers may establish for their workers.

The employer may add up to the annual limit to each employee's profit-sharing account in any year the company has a profit to share, though there is no obligation to make a contribution in any year.

The annual limit is stated as a dollar amount and as a percentage of salary, and the one which applies to each employee is the lower of the two alternatives.

Employers get a tax deduction for their contribution. Employees owe no income tax on the contributions or on any of the earnings in their accounts until they withdraw money.

In some cases, employees in the plan may be able to borrow from their accounts to pay for expenses such as buying a home or paying for college.

Profit-sharing plans offer employers certain flexibility. For example, in a year without profits, they don't have to contribute at all. And they can vary the amount of each year's contribution to reflect the company's profitability for that year.

However, each employee in the plan must be treated equally. This means that if an employer contributes 10% of one employee's salary to the plan, the employer must also contribute 10% of the salaries of all other employees in the plan.

profit sharing

the distribution of some portion of PROFITS to the employees of a company. It can take the form of an annual cash bonus based on the previous year's profits or it can form an element of weekly or monthly pay (see PROFIT-RELATED PAY). Less direct forms of profit sharing include allocation to employees of shares in the company, paid for out of company profits, and providing employees with the option to buy shares at some point in the future at current prices, thereby enabling them to benefit from both the share dividend and any growth in share value resulting from increases in profitability (see EMPLOYEE SHARE OWNERSHIP PLAN). Profit sharing is often advocated to improve employee commitment and thereby improve PRODUCTIVITY. See FINANCIAL PARTICIPATION.

profit sharing

the distribution of some portion of PROFITS to the employees of a company. It can take the form of an annual cash bonus based on the previous year's profits, or it can form an element of weekly or monthly pay (see PROFIT-RELATED PAY). Less direct forms of profit sharing include allocation to employees of shares in the company, paid for out of company profits, and providing employees with the option to buy shares at some point in the future at current prices, thereby enabling them to benefit from both the share dividend and any growth in share value resulting from increases in profitability (see EMPLOYEE SHARE OWNERSHIP PLAN). Profit sharing is often advocated to improve employee commitment and thereby improve PRODUCTIVITY. See PRINCIPAL-AGENT THEORY.
References in periodicals archive ?
The defined benefit plan receives $60,000, and the profit sharing plan receives $40,000.
An employer's contributions to a profit sharing plan need not come from the employer's current or accumulated profits.
As with all qualified plans, a profit sharing plan provides a tax-deferred retirement savings medium for employees.
* If there are too many rank-and-file employees who are relatively older (ages comparable to that of the highly compensated participants) the cost of the cross-tested plan for the rank and file employees may be higher than that of other alternatives, such as a profit sharing plan integrated with Social Security.
An article addressing these subjects, "Using a Profit Sharing Plan as an Estate Planning Tool," by Andrew J.
Frequently they qualify as profit sharing plans by providing for employer contributions out of current or accumulated profits.
An individual whose monies are held in a qualified pension or profit sharing plan retains the protection no matter where he or she resides in the U.S.
Sissy's Log Cabin has a fund-raiser every year for Arkansas Children's Hospital by donating a percentage of sales to the hospital The money donated comes from every employee, since the business has a profit sharing plan, and the hospital receives over $20,000 each year.
The age-weighted profit sharing plan is an intriguing new tool for the design of retirement plans, permitting employers to make contribution allocations on the basis of age as well as salary.
Life insurance, whether part of a qualified profit sharing plan or separately owned directly, by the insured, is, with certain exceptions, considered part of the estate of an insured if the insured exercised certain powers over the policy within the three years prior to death.
401k Profit Sharing Plan, led by Mark Bentley and Tom Rystrom, purchased the 7825 Fourche Road project from Brent and Sam's Inc., led by Brent Bumpers.
In this respect, ABC Plus offers many of the advantages usually associated with executive benefit plans, yet it retains all the tax advantages of pension and profit sharing plans.