Discuss reasons why employers might want to implement a profit sharing plan, while employees might prefer a pension plan.
A big reason why an employer might want to implement a profit sharing plan rather than a pension plan is that they might not be able to make required steady contributions to the plan every year, because their annual profits can vary. With a profit sharing plan, the employer can adjust contributions to the plan depending on the annual profit, and if deemed necessary by the employer, no plan contributions at all need to be made. Using a profit sharing plan can also act as an incentive for employees, because if they work hard for the company’s success, then they can receive higher contributions to their plan.
Many employees would prefer a pension plan over a profit sharing plan because here the employer is required to make minimum contributions every year. This provides more security for the employee because he or she knows that their retirement fund is steadily increasing, whereas with a profit sharing plan no annual contributions are required. Also, profit sharing plans can put added pressure on employees for the company to succeed, which might not be a positive for all workers.
Normal distribution is usually in a lump sum at retirement and typically rolled over into an IRA
Exceptions to this rule are: death, disability, no longer with company, reaching the age of 59 1/2 and plan termination
Hardship withdrawals are permitted for the following reasons: medical bills, education, purchase of primary home, repairs to primary home due to casualty, funeral expenses and payments necessary to prevent eviction or foreclosures. You must also show that you do not access to other funds to pay these expenses. Also the withdrawal cannot exceed the amount necessary to cover the hardship. Contributions can be stopped for 12 months following this withdrawal and the contributions following the suspension will be reduced by the amount given the prior year.
These withdrawals usually apply to the employee, spouse or children expenses only.
All early withdrawals are subject to taxes and a 10% penalty.