TRADITIONAL PROFIT SHARING PLAN

THE BASICS: Employer contributions to the plan need not be a specific percentage and they need not be made every year, as long as they are "substantial and recurring." Profits are not required in order to make a contribution.

	1. Employer contributions are tax deductible. IRC Sec. 404(a).
	2. Contributions are not taxed currently to the employee. IRC Sec. 402(a) and 403(a).
	3. Earnings accumulate income tax-deferred. IRC Sec. 501(a).

	1. MAXIMUM ANNUAL DEDUCTION. Up to 25% of covered payroll can be contributed and deducted by the corporation.
	2. SALARY BASE (2008). Total compensation is generally used up to a maximum of $230,000.
	3. INDIVIDUAL LIMITS (2008). The allocation of contributions to a participant's account may not exceed the lesser of 100% of compensation or $46,000 per year.
	4. EMPLOYER CONTRIBUTIONS.     a. Most plans are discretionary as to the amount which the employer contributes.     b. If there are profits, the employer is expected to make "substantial and recurring" contributions. As a rule of thumb, contributions during 3 out of 5 years or 5 out of 10 years will usually gain IRS approval.
	5. EXCLUDING PERSONS. Certain persons can be eliminated on the basis of months of service, age and coverage in a union plan; for example, persons under age 21 can be excluded from the plan.
	6. INVESTMENT OF PLAN ASSETS. Plan assets can be invested in equity products, like mutual funds, stocks, debt free real estate, or debt instruments like T-Bills, CD's; or in insurance products like life insurance and annuity policies.
	7. SOCIAL SECURITY INTEGRATION. Since the employer already contributes to the employee's Social Security Retirement Benefit, these contributions can be integrated into the allocation formula of the plan.
	8. PARTIES WHICH ARE FAVORED. Typically younger participants are favored because they have a longer time for their fund to grow and share in forfeitures.

I. HOW MUCH WILL THERE BE AT RETIREMENT?

This will depend upon three factors:

	1. The frequency and amount of contributions,
	2. The number of years until retirement, and
	3. The investment return.

The risk of poor investment returns rests upon the employee. However, if the investment results are favorable the participant will have a larger fund at retirement age.

II. TOP HEAVY PLANS

If more than 60% of the plan assets are allocated to "key employees" then the employer must contribute at least as much for non-key participants as it does for key employees. This requirement applies only to a contribution of up to 3% of compensation -- (higher in some instances).

	1. Contributions are tax deductible.
	2. Contributions and costs are totally flexible.
	3. The plan is easy to understand by the employees.
	4. It can provide employees with permanent life insurance benefits that need not expire or require costly conversion at retirement age.
	5. The employer can direct investments.
	6. Co-ordination with Social Security will reduce contributions for rank and file employees.

	1. Annual contributions are not taxed to the participant.
	2. Earnings on the account are not currently taxed.
	3. Participants can have the right to direct investments.
	4. Participants can also have a deductible IRA, subject to income level and filing status.
	5. There is the ability to purchase significant permanent life insurance, which is not contingent upon the company group insurance program.
	6. Younger employees can accumulate a larger fund than with a Defined Benefit Plan.
	7. The unvested portion of accounts of former participants may be reallocated to the active participants accounts. This can have a substantial impact on the future benefits.
	8. Employee can borrow from the plan within certain guidelines, if provided for in the plan documents.

V. DISADVANTAGES TO EMPLOYER

1. The profit sharing plan will generally not produce as large a contribution and deduction for older employees as will  Defined Benefit or other types of plan.

VI. DISADVANTAGES TO EMPLOYEES

	1. There is no guarantee as to future benefits.
	2. Investment risks rest on the participant.
	3. Older participants will not receive as large a benefit as with a Defined Benefit Plan.
	4. There is no assurance as to the frequency and amount of employer contributions.