Benefits and Compensation

The Key Elements of a Profit-Sharing Plan

Yesterday, John Rubino of Rubino Consulting Services explained some of the background on profit-sharing plans, the 3 steps to establishing a deferred plan, and 4 of the steps involved in executing it. Today, we present the remaining 5 execution steps.

[For yesterday’s installment, click here.]

  1. Investing profit-sharing monies: There are a variety of investment vehicles available, with a wide range of risk profiles. Continually monitoring the investment options ensures that the plan selections remain in the best interests of the plan and its participants.
  2. Disclosing plan information to participants: The summary plan description (SPD) is a plain-language explanation of the plan. It must be comprehensive enough to apprise participants of their rights and responsibilities under the plan, including:
    • When and how employees become eligible
    • The contributions to the plan
    • The vesting schedule
    • When employees are eligible to receive their benefits and how to file a claim for those benefits
    • The employees’ basic rights under ERISA

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  1. Reporting to government agencies: In addition to the disclosure documents that provide information to participants, plans must also report certain information to government entities:
    • Form 5500, annual return/report of employee benefit plan, given to the U.S. Department of Labor.
    • Form 1099-R, distribution from pensions, annuities, retirement or profit sharing plans, IRA’s insurance contracts, etc. This form is given to both the IRS and plan participants.
  2. Distribution of plan benefits: Benefits in a profit-sharing plan are dependent on a participant’s account balance at the time of distribution. Participants can elect to:
    • Take a lump sum distribution of the account.
    • Roll over the account to an IRA or another employer’s retirement account.
    • Take periodic distributions.
    • Take an annuity or other lifetime income distribution option, if offered by the company.
  3. Hiring a service provider: Even if the company decides to hire a financial institution or retirement plan professional to manage the entire plan, the company does retain some fiduciary responsibility for the decision to select and keep that person or entity as the plan’s service provider. Thus, the company should document the selection process and monitor the services provided to determine if any changes are necessary.
  4. Some items to consider when selecting a plan service provider:

    • Information about the firm itself: affiliations, financial condition, experience with profit-sharing plans, and assets under its control
    • A description of how plan assets will be invested and how participant investment directions will be handled
    • Information about the quality of prospective providers: the identity, experience, and qualifications of the professionals who will be handling the plan’s account

Profit sharing plans are great for boosting morale and adding value to your overall compensation package—but don’t forget to stay on top of your base pay fundamentals. There are many comp strategies out there, and a pay grade system may be just what your organization needs. How to get there? Fortunately, there’s timely help in the form of BLR’s new webinar—Assembling a Pay Grade System: The Step-by-Step Process for Getting It Right. In just 90 minutes, on Thursday, May 28, you’ll learn everything you need to know about pay grade systems and how to implement them effectively.

Register today for this interactive webinar.

Get your salary structure in order—the RIGHT way. Join us Thursday, May 28, 2015 for a new interactive webinar, Assembling a Pay Grade System: The Step-by-Step Process for Getting It Right. Earn 1.5 hours in HRCI Recertification Credit. Register Now

By participating in this interactive webinar, you’ll learn:

  • What pay grades are and the correct way to determine them, for either creating or revising a structure
  • How a salary structure is built, with examples of different methods of putting them together
  • When to pay above market—and when it makes sense to pay below
  • Key ways that pay grades influence your performance/merit pay programs
  • How pay grades interact with variable pay
  • When and how to conduct an internal equity review
  • How to address pay discrepancies and inequities without creating legal liability
  • What to do about pay discrepancies between men and women in similar positions
  • Laws to consider when putting a compensation policy in place
  • Complying with Executive Order 11246, and how to handle increased EEOC anti-pay-bias enforcement
  • And much more!

Register now for this event risk-free.

Thursday, May 28, 2015
1:30 p.m. to 3:00 p.m. (Eastern)
12:30 p.m. to 2:00 p.m. (Central)
11:30 a.m. to 1:00 p.m. (Mountain)
10:30 a.m. to 12:00 p.m. (Pacific)

Approved for Recertification Credit

This program has been approved for 1.5 credit hours toward recertification through the Human Resource Certification Institute (HRCI).

Join us on Thursday, May 28—you’ll get the in-depth Assembling a Pay Grade System: The Step-by-Step Process for Getting It Right webinar AND you’ll get all of your particular questions answered by our experts.

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