profit sharing

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Related to Profit sharing plan: Deferred Profit Sharing Plan

profit sharing,

arrangement by which employees receive, in addition to their wages, a share of the net profits of a business. The purpose is to give them an incentive to increase their output through enhanced morale, less wasteful use of materials, better care of equipment, and the like. Profit sharing does not imply participation by the workers in management. The employer determines the rate at which profits are shared; since the rate is fixed beforehand, profit sharing differs from the bonusbonus,
extra amount in money, bonds, or goods over what is normally due. The term is applied especially to payments to employees either for production in excess of the normal (wage incentive) or as a share of surplus profits.
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 system. Profit sharing plans have been in operation in France since 1842 but have not been widely adopted in the United States. The plan has been most successful in businesses where employees work without direct supervision or where it is limited to supervisory employees or lesser executives, e.g., branch managers and department managers in department stores.

profit sharing

[′präf·ət ‚sher·iŋ]
(industrial engineering)
Sharing of company profits with the employees.
References in periodicals archive ?
As with all qualified plans, a profit sharing plan provides a tax-deferred retirement savings medium for employees.
The problem of adequate benefits is even worse in a profit sharing plan than in a money purchase plan because a profit sharing plan does not involve any required minimum annual contribution by the employer.
The employer's risk and costs tend to be lower for a profit sharing plan.
An employer's contributions to a profit sharing plan need not come from the employer's current or accumulated profits.
The maximum deductible contribution that the employer may make to a profit sharing plan in any one year is an amount equal to 25% of the compensation of all of the employees participating in the plan.
Oftentimes, a discretionary profit sharing plan is established by an employer whose profits are volatile or who cannot anticipate from year to year what its company's needs might be with respect to retaining profits for other important business needs.
If the non-participant spouse dies first, the profit sharing plan merely owns a single life policy on the life of the plan participant.
If a profit sharing plan does not exist, in many situations a plan can be created, and if the business owner or professional has an IRA rollover account with funds that were never commingled with a personal IRA, those funds, when needed, can be rolled into the profit sharing plan and used to pay premiums.
The age-weighted profit sharing plan does not differ in any other respect from the traditional profit sharing plan.
In making allocations under an age-weighted profit sharing plan, it is necessary to make reallocations whenever any participant's amount exceeds the 25%/$30,000 individual limit.
If the participant dies first the profit sharing plan account continues to hold the policy, which is now a policy on the life of the surviving spouse.
The participant would have executed a beneficiary designation, directing the trustee of the profit sharing plan to transfer ownership of the policy to the irrevocable trust if the participant dies before the spouse.