Question

Which of the following is true of a deferred profit-sharing plan?

a) Money paid into the plan must vest over 2 years and is paid out on a
prorated basis annually.
b) Money paid into the plan is held in a trust and paid out when the employee
leaves the organization.
c) Money paid into the plan is taxed for the year in which it is earned.
d) Money paid into the plan includes a combination of immediate cash and
future stock based on company profit.

Answer 1

The correct statement about a deferred profit-sharing plan is that the money paid into the plan is held in a trust and is paid out when the employee leaves the organization. Option d

Step-by-step explanation:

Among the options provided, the correct statement regarding a deferred profit-sharing plan (DPSP) is option b): Money paid into the plan is held in a trust and paid out when the employee leaves the organization.

Deferred profit-sharing plans are a type of defined contribution plan where the employer contributes a portion of the company's profits to the employees' retirement savings.

These contributions are typically tax deferred, meaning that employees do not pay taxes on the contribution amounts until they withdraw the money, usually at retirement. The amount contributed and any investment gains grow tax-deferred over the course of the employee's tenure with the company.

A DPSP is different from immediate cash bonuses or stock options because the primary focus is on long-term savings and retirement benefits rather than immediate compensation. Therefore, option d) is incorrect since a DPSP predominantly consists of contributions made to a trust rather than an immediate combination of cash and stock. Option d