Profit Sharing Plans Key Terms

Knowing these profit sharing plan terms will save you time when researching your options

In today’s world, many companies offer employee profit sharing plans to entice prospective employees to join their team, or to give existing employees the incentive to raise their productivity. There are many different types of profit sharing plans available, so how do you know which one is the best for you company? There are a few key words and catch phrases that you should know before starting your research and look into sample profit sharing plans.

Familiarize yourself with these profit sharing plans key terms to make choosing your profit sharing plan easier:

1. Imagine the key term “cash” when considering a profit sharing plan that hands out money.

2. Put aside savings for your employees with a deferred profit sharing plan.

3. Learn the key ingredients of a combination profit sharing plan.

 

Consider a cash profit sharing plan and give an immediate payout

The key word in "cash profit sharing plan" is "cash." A profit sharing plan of this type is a common employee incentive. While it is up to the individual employer, many companies opt to pool the profit sharing money together and give a cash payout at the time of their choice, whether it'd be at the end of the year or quarterly. One of the major drawbacks of this company profit sharing plan is that the government taxes the money once transferred to the employee, lowering the amount that actually goes back to the employees.
Try: Learn everything you need to know about cash profit sharing plans from this article from the Beyster Institute. The U.S. Bureau of Labor Statistics has numerous articles for you to browse when you want to learn more about a cash profit sharing plan.

Think deferred when searching for a profit sharing plan for the future

A deferred profit sharing plan is a profit sharing retirement plan in which your employer puts the contribution directly into the retirement account. These accounts usually have restrictions on the amount the business can contribute as well as regulations regarding the length of time an employee has been with the company before withdrawing any money. It is not a good idea to rely on this as a sole means of saving retirement money, because the company cannot guarantee consistent contributions.
Try: ProfessionalReferrals not only gives the definition of Deferred Profit Sharing Plans, but also provides other information such as the benefits and features. Mackenzie Financial Corporation has a helpful page defining deferred profit sharing plans as well as giving the contribution limitations.

Combine cash and deferred profit sharing plans when you want the best of both worlds

Combination plans are essentially the best of both qualified profit sharing plans. This option has two parts: the occasional cash payout and the contribution to the employee retirement account. This option isn't as common as it used to be as the focus has turned away from getting smaller amounts of money in two different ways to getting the larger amount of money using one method.
Try: When you want to learn about combination profit sharing plans for small businesses, click through Investorguide.com. This comprehensive page not only gives information on combination profit sharing plans, but also other types of plans as well in cash you want to comparison-shop. This article on bBNET has some great information pertaining to the advantages of a combination cash and 401k profit sharing plan.

 

• Consider putting together a brief presentation containing these profit sharing plans key terms, showing it to your employees and give them a vote on which plan you ultimately choose. They will appreciate your willingness to choose the plan that is best for them as well as one that is beneficial to your company.

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