Profit-sharing plans offer a rank mix between employees and owners; growth through investment in stocks, bonds, mutual funds, and savings accounts; and limitations on taxes until the fund distributes capital, according to the United States Department of Labor. Profit-sharing plans serve as a valuable financial instrument and retirement savings option.
Professional investment counselors manage the funds in a profit-sharing plan. The owners and employees of a company have a vested interest in the plan, meaning that they do not receive distributions until they leave the company, states the Kiplinger website. Certain plans invest company funds directly into company stock. This approach makes the plan dependent on whether the value of the stock appreciates over time.
For the profit sharing plan to retain its tax benefits, it must provide substantive benefits for rank-and-file employees and not just owners or managers, notes the Department of Labor website. Certain formulas compare the contributions made for each participant to determine if a profit-sharing plan is eligible for favorable tax treatment.
Investors in a profit-sharing plan receive a summary plan description related to operations, eligibility, contributions and how to file a claim for benefits, states the DOL. Participants also receive an individual benefit statement listing the total plan benefits earned.