Company profit sharing plans are an ideal way to attract, retain, and motivate employees and is an important part of quality employee benefits programs. A well though out profit sharing plan administered efficiently can take your business to new heights. The general idea behind a profit sharing plan is that if each employee is successful in their jobs, the company itself will become successful. An employee who shares in the good fortune of the company will become motivated to perform even better.
How Profit Sharing in Employee Benefits Program’s Work
The profit sharing portion of an employee benefits program is based on a distribution of profits to the people working in your company. The plan is normally designed whereby a set percentage of earnings are distributed each year to employees. In many cases an employer will provide for an additional discretionary contribution to be made in extremely profitable years.
Some will argue that profit sharing plans are not equitable as they favor higher wage earners. While this is true, it is the high wage earners that are generally in management positions and are leading the company. As their contributions are normally more valuable it stands to reason that they receive a larger amount of the profit sharing funds.
To avoid having employees quit their jobs and running off with the company’s profit sharing contributions there is normally a period of time the employee must wait before becoming vested in the program. ERISA (Employee Retirement Income Security Act) allows for limited options for the vesting of employer contributions. For example, an employer may stipulate that an employee must be employed by the firm for a period of three years before they “own” the employer contributions. If the employee leaves before this time period the funds will revert back to the company.
Once you establish profit sharing as part of your employee benefits program you must give all employees the option to participate. You cannot pick and choose who gets to join the plan. If you would like to exclude certain employees, you are likely better off with an individual employee incentive plan. Employees can also choose their investment options based on the level of risk they are comfortable with.
Benefits of a Profit Sharing Program
A profit sharing plan has employer and employee benefits that make such a program very attractive.
Employees are able to contribute a portion of their wages to their retirement plan without paying taxes on the income.
The employer contributions to the plan are tax deductible.
The period of time to become vested helps to retain staff as they don’t want to lose the employer contribution.
Employees feel a part of the company’s success. There are common goals to be achieved and they gain recognition for their efforts when the disbursement is made.
Employee investment earnings grow tax deferred until withdrawn which is normally upon retirement when their tax rate is lower.
Loan and hardship withdrawals are allowed but not mandatory. If an employee has a medical emergency or other financial hardship they can access the money.
The BORSA Plan, a small business funding option allowed through a provision of the ERISA Tax Act, includes a profit sharing plan as part of its financial architecture. You can find out more about DRDA, CPA, the firm that offers this program by contacting them through the information listed below.
Pick up the phone right now and call 281-606-5719 !! It's your money, your dream, and if you believe you have a solid business idea and are willing to put your all into bringing it to life then you deserve access to your own money without tax or penalty! The BORSA Plan will do that for you. Call now at 281-606-5719 and ask for Suzy Granger. If it's after normal business hours then leave a message, or fill in the short form below. Either way, your inquiry will be returned immediately upon resumption of regular business hours. Get the money you've already earned and start your dream right now!
