An employer who adopts a profit sharing plan has the discretion as to the amount to contribute to the plan each year. The plan must contain a formula for allocating the contribution to participants.
An employer would select a profit sharing plan because of the ability to elect each year how much to contribute to the plan. The employer can, but is not required to, make a contribution in years when it has little or no profits, or, when income is needed for other purposes, such as expanding operations. In other words, there is no fixed annual contribution commitment.
The total contribution to a profit sharing plan in any one year cannot exceed 25% of the aggregate covered compensation for all employees participating in the plan.
Because contributions need not be the same percentage for all employees, employees may actually get as much as 100%, while others may get as little as 5%.