Question

Pure profit sharing plans

a.) Are funded solely by the employee.
b.) Are funded by PBGC.
c.) Are funded solely by the employer.
d.) Are jointly funded by the employer and the employee.

Answer 1

Pure profit sharing plans are company retirement savings plans funded solely by the employer, unlike traditional pension plans or defined contribution plans which may involve both employer and employee contributions.

Step-by-step explanation:

Pure profit sharing plans are retirement plans that are funded solely by the employer, which means the correct answer is (c). These are different from pension plans, where the employer might be required to ensure a pension benefit through the Pension Benefit Guarantee Corporation in case of bankruptcy.

Today, traditional pension plans are becoming less common, being replaced by defined contribution plans, such as 401(k)s and 403(b)s, where both the employer and the employee may contribute. These retirement savings plans are more flexible and portable, and they also offer tax deferral benefits to employees.

A pure profit sharing plan is a retirement plan funded solely by the employer. In this type of plan, the employer contributes a portion of its profits to the retirement accounts of its employees. The amount of the contribution is usually based on the company's profits for the year and is distributed among eligible employees based on a predetermined formula.