IFG can assist businesses of all sizes establish a retirement plan, including profit sharing plans. Working closely with employers, one of IFG’s Benefits Consultants can determine which options are best suited for the company. Businesses who work with a IFG can gain a competitive advantage in attracting and retaining top employees, and may increase overall employee job satisfaction.
Profit Sharing Plans
Depending on the needs of the business, a profit sharing plan may be a viable retirement plan option for businesses. This is in part because Profit Sharing Plans may provide employees with an incentive to maximize the company’s profits.
How Profit Sharing Plans Work
There are two primary types of retirement plans: defined benefit plans and defined contribution plans. Profit sharing plans are defined contribution plans, where an employer can determine how much and when the company contributes to the retirement plan. In most cases, the funding for each account is based on the employee’s salary level, with each employee given a share in the company’s profits. This type of plan is subject to both state and federal regulations.
The contributions to a profit sharing plan account grow on a tax-deferred basis, which means that employees will be taxed only when they receive distributions from the plan. This typically happens after an employee retires or otherwise terminates their employment. When an employee can withdraw from the account depends on the plan’s rules, as well as federal and state law. Early withdrawals may be subject to penalties and taxes. Most plans have a vesting schedule, where employees must stay with a company for a specific period of time before becoming fully vested in the plan. If an employee leaves before that vesting period is up, he or she may forfeit some or all of funds of the account.
To manage the plan’s assets and prepare the required documentation, a company may decide to appoint a trustee. A plan administrator can handle the remaining administrative duties, such as enrolling participants in the plan and handling the day-to-day details. The plans are often funded using mutual funds, life insurance, and/or variable annuities. It may also be possible to set up a profit sharing plan that allows employees to choose how to invest the assets in their accounts.
Benefits of a Profit Sharing Plan
For employers, profit sharing plans can greatly increase employee happiness and satisfaction, and can improve the company’s bottom line. Implementing a profit sharing plan as an incentive to employees may result in increased employee morale and productivity. A profit sharing plan may also increase loyalty to the company if employees feel more connected to the company when their retirement benefits are tied to the company’s success. Employees may come together to reach a common goal—increasing collaboration and motivation. In this way, a profit sharing plan can be a significant asset to a company.
For employees, profit sharing plans may offer similar tax advantages to other retirement savings accounts. The additional income that is placed into the plan will not be taxed until after withdrawal, and the funds can grow tax-free. If applicable, this type of tax benefit may be highly valued by employees.
Advantages of Working with A Benefits Consultant
Setting up a profit-sharing plan can be complicated. In addition to determining the plan basics—eligibility, percentage of profits, vesting—the plan must comply with state and federal law. IFG can work with employers to help them establish a profit sharing plan that works for their company. One of our professional Benefits Consultants can save businesses time and money in setting up a profit sharing plan, and can help employers to build a well thought out plan to attract top employees and to increase employee retention and satisfaction. IFG can also ensure that the plan is administered properly, and that all tax and financial documents are filed in a timely manner.