Nominal Profit-Sharing PlansNominal profit-sharing plans allow employers to decide, on a yearly basis, how much to contribute on behalf of their employees without regard to any stated formula. The law requires that such discretionary contributions be "substantial and recurring", which the Internal Revenue Service assesses on a case by case basis. Because nominal profit-sharing plans have no stated formula, they give employees no direct interest in a firm's profitability. They do, however, offer employers maximum flexibility to adjust contributions each year. Approximately 5 percent of the employees of medium-sized and large establishments and 3 percent of employees of small establishments are covered by profit-sharing plans with no stated formula. In all other respects, nominal profit-sharing plans are indistinguishable from true profit-sharing plans.
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