Читать книгу Auditing Employee Benefit Plans - Josie Hammond - Страница 15

Profit-sharing plans are defined contribution plans in that they provide individual accounts for each participant, and benefits are based on the amount contributed to the account, along with any income, gains, and forfeiture allocations less an allocated share of expenses and losses. Profit-sharing plans are distinguished from other defined contribution plans because the contribution is usually discretionary. Management or the board of the plan sponsor can choose whether or not to make a contribution in any year and the amount of such contribution. Some of these plans do include formulas for determining the contribution, but that is not required.

What is required is that the plan document include a specific formula for allocating the contribution. Some plans allocate the contribution based solely on compensation. Others use a combination of compensation and years of service. It is permissible, within limits, for these plans to allocate higher contribution rates on wages above the Social Security wage base than on wages earned below that level. Some plans employ a concept known as cross-testing or age-weighted formulas. These plans allocate different contribution rates to different employee classes. The plans may be tested for discrimination based upon the future benefit levels provided by these contributions, rather than the current contribution rate.

Even with the complexity of concepts such as cross-testing, profit-sharing plans are among the simplest of plan designs. As we cover the tax compliance issues of plans, you will note that profit-sharing plans are exempt from some of these requirements.