The increasing median age of the population due to declining fertility rates and increased life expectancy – is nothing new. The resulting demographic change is placing new constraints on employers as employees increasingly demand retirement benefits to support themselves in old age. “Talent,” or employees, is the most important resource a business has, so it is important for businesses to give careful consideration to the compensation and retirement plans they offer. Otherwise, employers may find that they lose, or fail to attract, top talent to businesses offering a better deal.

Two of the most common retirement plans are profit-sharing plans and defined benefit plans.

How do Profit-Sharing Plans Work?

A profit-sharing plan is a retirement plan that accepts discretionary employer contributions.[1] Rather than mandating a set contribution, companies can decide from year to year how much to contribute. If a company has a bad year and fails to realize a profit, it may opt not to contribute to the plan. Employers using a profit-sharing plan must file Form 5500 with the IRS. Benefits of profit-sharing plans include:

  1. Flexibility: for small businesses and startups that may be strapped for cash, the ability not to make contributions is noteworthy.
  2. Talent: since employees favor defined benefit plans, defined benefit plans tend to increase the pool of qualified candidates and yield greater employee satisfaction.

Which is the Best Profit-Sharing Option for your Business?

For startups and small businesses with varying cash flows, profit-sharing plans may be the best option to avoid taking on more than the company can chew. For more established businesses with reliable cash flows, defined benefit plans may be better to attract (and keep) the best talent and increase employee satisfaction.

[1] Choosing a Retirement Plan: Profit-Sharing Plan (Mar. 13, 2019, 11:55 a.m.).

[1] Choosing a Retirement Plan: Defined Benefit Plan (Mar. 13, 2019, 12:15 p.m.).

EPGD Business Law is located in beautiful Coral Gables, West Palm Beach and historic Washington D.C. Call us at (786) 837-6787, or contact us through the website to schedule a consultation.

*Disclaimer: this blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*

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Eric Gros-Dubois

Eric P. Gros-Dubois founded EPGD Business Law in 2013 and is the current head of the firm’s corporate, estate planning, and tax practice, and manages the firm’s Washington D.C. office. With a JD and MBA, and a specialization in finance, Eric is able to step back and view the legal world through a commercial lens while also acting as a trusted business advisor for his clients. He does his best to be solutions oriented, and tries to think like a business owner, not just a lawyer.


*The following comments are not intended to be treated as legal advice. The answer to your question is limited to the basic facts presented. Additional details may heavily alter our assessment and change the answer provided. For a more thorough review of your question please contact our office for a consultation.

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