Which of the following is NOT a type of profit-sharing plan?

Which of the following is NOT a type of profit-sharing plan?

• A. Cash
• B. Deferred
• C. Defined benefit
• D. Cash or Deferred CODA

Answer: (C)

A defined benefit plan is distinct from profit-sharing plans because it guarantees a specific retirement benefit amount based on a formula that considers factors such as salary history and years of service. In contrast, profit-sharing plans are defined contribution plans that rely on the employer's profitability to provide discretionary contributions to employees' retirement accounts. Employers can vary contributions annually depending on the business's financial performance, which is a fundamental characteristic of profit-sharing arrangements. Profit-sharing plans typically can take the form of cash payments or contribute to a deferred retirement account (such as a 401(k)). The term “Cash or Deferred CODA” refers to a feature where employees can choose between receiving immediate cash or deferring that amount into a retirement account, which directly relates to profit-sharing structures. Hence, defined benefit plans do not fit within the category of profit-sharing plans due to their fundamentally different design and objective of providing predetermined benefits rather than shared profits.

A defined benefit plan is distinct from profit-sharing plans because it guarantees a specific retirement benefit amount based on a formula that considers factors such as salary history and years of service. In contrast, profit-sharing plans are defined contribution plans that rely on the employer's profitability to provide discretionary contributions to employees' retirement accounts. Employers can vary contributions annually depending on the business's financial performance, which is a fundamental characteristic of profit-sharing arrangements.

Profit-sharing plans typically can take the form of cash payments or contribute to a deferred retirement account (such as a 401(k)). The term “Cash or Deferred CODA” refers to a feature where employees can choose between receiving immediate cash or deferring that amount into a retirement account, which directly relates to profit-sharing structures. Hence, defined benefit plans do not fit within the category of profit-sharing plans due to their fundamentally different design and objective of providing predetermined benefits rather than shared profits.