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A profit-sharing plan is a type of retirement plan that allows employees to share in a company's income. An employee earns a share of a company's income based on quarterly or annual earnings under this form of arrangement, also known as a deferred profit-sharing plan (DPSP). This is an excellent way for a corporation to give its employees a sense of ownership, but there are usually limitations on when and how these funds can be withdrawn without penalty.
Any retirement package that accepts voluntary employer contributions is referred to as a profit-sharing plan. Because of the personal contributions, a retirement package with employee contributions, such as a 401(k) or anything similar, is not a profit-sharing plan. Businesses decide how much they want to assign to each employee and they set up profit-sharing arrangements. A business that provides a profit-sharing arrangement changes it as required, having no contributions in some years. However, in years where it makes contributions, the organization must devise a standard benefit distribution formula. The comp-to-comp approach is the most popular way for a company to decide the distribution of a profit-sharing scheme. An employer first estimates the overall pay of all of its workers using this method. The corporation then splits each employee's gross compensation by that amount to decide what proportion of the profit-sharing agreement an employee is entitled to.
Browse through a sample collection of professional Sharing Plan Templates that have been curated just for you. Download options are available in Word, Pages, and several others.