Profit Sharing Plan Contribution Not Appreciated

Profit sharing plan contributions fall outside of what many employees think of when they think of employee benefits. Some companies choose to make annual profit-sharing plan contributions to every employee regardless of whether the employee chooses to defer money into a 401k plan or not.  Because the term 401k has become synonymous with the term retirement plan many employees fail to recognize the value of a pure profit sharing plan. At the conclusion of a TPSU program which was held at the location of Villanova University in the greater Philadelphia, Pennsylvania area, Fred Barstein, Founder and CEO of The Plan Sponsor University (TPSU), met with Kim to discuss retirement benefits.  Kim serves as the Director of Finance and Information Technology for her 190-employee organization.  Kim discussed the generous profit sharing plan contribution that her firm provides to every eligible employee and the fact that some plan participants fail to consider the profit sharing contribution as the great benefit that it is.  An annual 7% profit sharing plan contribution is a generous employee benefit – but only if the company employees understand it!  The challenge for Kim’s firm is in properly communication the benefit. However, in some instances it has been difficult for company employees to recognize the true value of the profit sharing plan contribution.

Full Transcript Here

Fred Barstein:
Fred Barstein with 401k TV at Villanova University where we just completed a TPSU program and I’m so happy to be here with Kim welcome Kim.

Kim:
Thank you.

Fred Barstein:
Kim was… Attended our program. Okay if we ask you a few questions?

Kim:
Absolutely.

Fred Barstein:
Thank you. But before we do, tell us your first name, size of your organization and your role there.

Kim:
My name is Kim and I work for a manufacturing company that employees 180 people. And my role there is director of finance and information technology.

Fred Barstein:
Great. So during the program you talked about your company that has a generous match.

Kim:
Yes.

Fred Barstein:
And which is not elective plus profit sharing.

Kim:
That’s correct.

Fred Barstein:
We won’t say the name of your company because you’ll be flooded with applications. It’s 10% in total.

Kim:
Yes. There’s a 3% automatic contribution for anyone who’s eligible to be in the plan, regardless if they’re contributing or not. And then we have a very generous profit sharing plan, which is typically around 7% a year. So that’s the 10% contribution the employees are receiving.

Fred Barstein:
Right. And so what was the concern you had about that?

Kim:
My concern is that a lot of the employees don’t realize or value that 10% contribution into their plan. We’ve had so many employees leave the company because they found another job-

Fred Barstein:
Right.

Kim:
…that’s offering, pennies more on the dollar and they’re not considering the value of that 10% contribution.

Fred Barstein:
Right. So you want to show the full, benefit value-

Kim:
Yeah.

Fred Barstein:
…not just the salary.

Kim:
Right.

Fred Barstein:
And part of that may have to do with… Well that’s going to somebody else, my future self.

Kim:
Mm-hmm (affirmative).

Fred Barstein:
And I don’t care about that future self.

Kim:
Correct. And I think the concept of the future self was a really at least it was eyeopening for me. So I think that concept is a really good one to spread.

Fred Barstein:
So we got to let them know that.

Kim:
And I’ve got to spread the word. Yeah.

Fred Barstein:
Very good so, final question just a couple of things you may want to try to implement other than the future self concept.

Kim:
I like the auto-escalate concept. I think that’s a really good concept and people don’t really think about that. I know it’s something I’m not currently doing, I had kind of in my younger years.

Fred Barstein:
Right.

Kim:
Every time I got a raise, I’d put that amount of money into a separate savings account and I got away from that practice, but it was a really good one, it’s a good way to accumulate wealth relatively quickly without even missing… Feel like you’re losing out on anything.

Fred Barstein:
Right. Well thanks for your time today.

Kim:
Thank you so much.

Fred Barstein:
Thank you for attending TPSU hopefully we’ll see you in six months, and thank you for watching 401k TV.

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