Business Glossary

plan by which corporate executives and employees receive a share of the company's net income on some equitable basis. Such basis may relate to salary level and service years. The maximum amount that an employer can deduct in any one year for the profit-sharing plan is 15% of compensation. Two or more profit-sharing plans are treated as one plan for purposes of limiting employer deductions. Under the present tax law, employer contributions are not limited to the employer's current or accumulated earnings.

agreement between a corporation and its employees that allows the employees to share in company profits. Annual contributions are made by the company, when it has profits, to a profit-sharing account for each employee, either in cash or in a deferred plan, which may be invested in stocks, bonds, or cash equivalents. The funds in a profit-sharing account generally accumulate tax deferred until the employee retires or leaves the company. Many plans allow employees to borrow against profit-sharing accounts for major expenditures such as purchasing a home or financing children's education. Because corporate profit-sharing plans have custody over billions of dollars, they are major institutional investors in the stock and bond markets.

arrangement by an employer in which employees share in profits of the business. To be a qualified plan, a predetermined formula must be used to determine contributions to the plan and benefits to be distributed, once a participant attains a specified age, becomes ill or disabled, severs employment, retires, or dies. When a profit-sharing plan is first installed, employees with considerable past service usually do not receive such credit. An advantage to an employer is that in low or no profit years, the business does not have to contribute to the plan, since contributions are voluntary and the Internal Revenue Code does not require a minimum contribution, as with a deferred benefit plan or a money purchase plan .

agreement between a corporation and its employees that allows the employees to share in company profits. Annual contributions are made by the company, when it has profits, to a profit-sharing account for each employee, either in cash or in a deferred plan, which may be invested in stocks, bonds, or cash equivalents. The funds in a profit-sharing account generally accumulate tax deferred until the employee retires or leaves the company. Many plans allow employees to borrow against profit-sharing accounts for major expenditures such as purchasing a home or financing children's education.