profit-sharing

Definition

An arrangement in which an employer shares some of its profits with its employees. The compensation can be stocks, bonds, or cash, and can be immediate or deferred until retirement. Profit-sharing allows for changing contributions each year. Contributions are determined by a formula to allocate the overall contribution and distribution of accumulated funds after the retirement age. Unless the plans are defined as an elective deferral plan, the contributions are not tax deductible. Contributions and earnings can grow tax-deferred until withdrawal.

Use profit-sharing in a sentence

At the end of the year the CEO implemented profit-sharing, sharing the company's excess profits with all of the employees as an end of the year bonus.

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