CURRENT QUALIFIED PLAN TRENDS | Profit-Sharing and Similar Plans

Although only the traditional types of pension plans involve an employer commitment to adequate retirement income for employees, trends in management, the economy, and the workforce have produced a gradual erosion in qualified pension plan coverage and a movement toward "nonretirement" plans—that is, defined-contribution plans that provide a form of savings and incentive benefits for employees without a specific funding commitment by the employer. The reasons for this trend include the following:

Figure 1: Pension Coverage

• Competition and cost pressures to minimize wage and benefit costs

• Increasing acquisition, dissolution, and reorganization of business enterprises discourage employer long-term commitment to employees

• Decline in collective bargaining; labor unions have traditionally favored the defined-benefit plan

• Increased mobility in the workforce; the 40-year career with one employer has become a rarity

• Employers are using more part-time employees, leased employees, and independent contractors who would generally receive little benefit from a traditional pension plan

• Increase in families with two wage earners; traditional pension plans tend to duplicate benefits in such cases

We will discuss the following:

• Qualified profit-sharing plans

• Savings or thrift plans

• Employer stock plans (stock bonus plans and ESOPs)

Increasingly, the trend in qualified planning is toward salary savings plans such as 401(k) plans, which are primarily funded through employee salary reductions that are contributed to the plan. These plans are typically combined with the traditional employer-funded profit-sharing plans, or with those in which employer contributions match the employee salary reductions. First, to fully understand how salary savings plans work, the basic profit-sharing plan and its variants