Author Topic: Profit sharing plan's "employer" contribution  (Read 2573 times)

Cyrano

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Profit sharing plan's "employer" contribution
« on: November 01, 2013, 07:01:11 AM »
My spouse's new employer has a retirement savings plan that blurs the line between employee and employer contributions.

Upon employment, employee makes an election to participate in the plan at a 5%, 10%, etc., up to 25% level. This election can be altered once every five years. Employee's compensation is reduced. The amount of the salary reduction is contributed to the profit sharing plan, such that the amount of the contribution is the indicated percentage of the employee's remaining compensation.

Either the plan is structured to turn employee contributions into employer contributions, and so let the employee contribute up to the higher employer limit, or this is an invitation to make excess employee contributions that the IRS will eventually claw back.

Have you seen this before? Is it legit?

matchewed

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Re: Profit sharing plan's "employer" contribution
« Reply #1 on: November 01, 2013, 07:22:32 AM »
Cyrano is there an acronym for the plan? Without any actual name of the plan it will be hard to fact check anything. If it is considered a retirement savings plan you can bet the IRS is involved and therefore there will be guidelines for it.

Cyrano

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Re: Profit sharing plan's "employer" contribution
« Reply #2 on: November 01, 2013, 07:41:17 AM »
The paperwork from the employer calls it a multi-level profit-sharing plan.

KingCoin

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Re: Profit sharing plan's "employer" contribution
« Reply #3 on: November 01, 2013, 07:53:56 AM »
Jargon aside, what's actually going on here? What is your contribution buying exactly? Profit sharing seems to imply equity in the firm, but it's unclear. What happens if you leave the firm? Can you roll the contributions into an IRA? How are the contributions valued? How does profit sharing work? etc. etc. etc.

matchewed

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Re: Profit sharing plan's "employer" contribution
« Reply #4 on: November 01, 2013, 08:05:03 AM »
Well looking through the IRS on profit sharing it does state that the plan can be as complex or simple as the employer likes. It also states that the profit sharing aspect can only come from the employer not the employee. So that seems to follow suit with a voluntary reduction in compensation to have that reduction come back as retirement contributions from the employer in the form of "profit sharing." It seems legit in a legal sense but I think it's a rather shady in a sense of employers trying to make it seem as if they're providing profit sharing for retirement. They're just using the profit ordinarily set aside for salary and moving into a different bucket.

Other than that I'm not fully confident in my knowledge of the situation.

 

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