Most people use the name profit sharing (PS) but what it’s actually called is employer non-elective. Employer non-elective contributions can provide some very nice benefits to the owner and employees of a company. That’s what we will be covering in this article today.
Profit sharing (employer non-elective) is a contribution that goes to eligible employees whether they make a 401(k) contribution to the plan or not. It’s also the best way for owners to max out their own allocations within the plan.
Benefits of Profit Sharing
PS or employer non-elective is one of the best ways for employers to max out their own allocations. You need these three different contributions to max out your allocation:
- Safe Harbor
- Employee Deferral
- Profit Sharing
The IRS has made it legal for older employees in the company to receive a larger contribution percentage than younger employees. This is how you can leverage your contributions to get the most out of your plan.
401(k) plans by themselves are very flexible, but when you add PS contributions into the mix we can do some great things. We put provisions in the plan where the employer can pick different contribution amounts for all eligible employees each year. Therefore, we do not need to make a plan amendment each year.
Another way profit-sharing contributions are so flexible – even if you make a maximum PS contribution this year, doesn’t mean you have to make any contribution next year.
The employer can choose to have profit sharing contributions subject to vesting so that employees are not immediately 100% vested.
Attract New Employees
Because of the benefits that PS contributions provide. More and more employers are looking for PS contributions to attract and keep employees longer.
When Should You Start a Plan With Profit Sharing
It depends on how long you have until you retire. If you have 30 years until you retire, maybe you can get away without starting it today. If you want to retire sooner, you should probably start the plan as soon as possible. Luckily we make it really easy to add a PS contribution to your plan. Just go to our contact us page and our sales team will answer any of your questions.