Profit Sharing Plans
Profit Sharing plans are normally the first significant change to an existing 401(k) plan. They allow the employer to make discretionary contributions on an annual or more frequent basis to eligible participants.
Profit Sharing contributions can be allocated to participant accounts in a wide variety of ways. More contemporary designs have participants in allocation tiers so that the allocations can help a plan sponsor have flexibility in meeting the goals for the plan.
There are rules with respect to non discrimination testing that are different from 401(k) deferral and matching contribution discrimination testing.
The maximum allocation in Profit Sharing plans and the limits on 401(k) and catch-up contributions has increased significantly over the years making Profit Sharing plans with 401(k) features the most popular structure.
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