Finance

   There are many ways that an employer can pay you or supply you with different types of benefits, and often these are received by the employee in a form of a retirement plan. They all serve different purposes and are received differently from the employer. None of the retirement plans are mandatory, and the employer can choose how to supply you with these benefits.

Profit Sharing Plans

            A profit-sharing plan is established by the employer and is used as a vehicle for them to share their profits with their employees and beneficiaries. The amount that is deposited into the employee accounts each year has to follow a predetermined formula of how much will be contributed and there has to be defined eligibility requirements and allocation with no discriminations (Dalton & Dalton, 2021). A profit-sharing plan is a type of deferred compensation which means that there is a tax deferral benefit for the employed participant. In recent years, profit-sharing plans have grown by 69% and now almost 20% of all firms in the United States offer a profit-sharing plan (Magnan et al., 2017).

            Profit-sharing plans are unique because they do not have any mandatory funding standards. This means that most group profit-sharing plans require a designated profit target to be met before any payouts occur (Magnan et al., 2017). These plans have advantages beyond the tax benefits which include the investment options and in-service withdrawal options (Dalton & Dalton, 2021). These plans allow for 100% of the assets to be invested in employer securities which some other plans do not allow for, especially pension plans. These assets are used for retirement, but sometimes the plans that the assets are put into have other investment limitations, but they allow for in-service withdrawals which means they can roll their eligible funds into an IRA while still working to expand investment options (expanded equity options and annuity purchases). These profit sharing plans are preferred by some employees because of their benefits and feel as if they are being treated well. As Colossians 4:1 says, masters, treat your slaves justly and fairly, knowing that you also have a Master in heaven (ESV, 2022).

Pension Plans

            Pension plans are still retirement plans that are established by the employers to benefit their employees once they reach a specific retirement age. The intention of a pension plan is to provide the employee with guaranteed income to help cover their expenses in retirement. There are specific calculations for the accrued balance that will be delivered to the employee at the specified age. Unlike the profit sharing plans, the pension plans are subject to mandatory funding standards, which means that the employer is required to put contributions into this retirement plan for their employers despite their own profits.

            The investment options for these accounts are limited, and the restriction for plan assets that are allowed to be invested in employer securities are 10% (Dalton & Dalton, 2021). As the story in Numbers 8:23-26 says, The Lord said to Moses, men twenty-five years old or more shall come to take part in the work at the tent of meeting, but at the age of fifty, they must retire from their regular service and work no longer (ESV, 2022). During this step at retirement, or the age of fifty as the Bible says, the employer, or master, should help their workers enjoy the time that they have deserved from serving most of their life.

Citations

Dalton, M. A., Gillice, J. M., Dalton, J. F., & Langdon, T. P. (2021). Fundamentals of Financial Planning. Money Education.

Elton, E. J., Gruber, M. J., & Busse, J. A. (2004). Are investors rational? choices among index funds. The Journal of Finance, 59(1), 261288. https://doi.org/10.1111/j.1540-6261.2004.00633.x

ESV. ESV Bible. (2021).