A Profit Sharing Plan is a type of Defined Contribution Plan that is not a Pension Plan. The employer’s contribution to a Profit Sharing Plan is not required to be fixed, nor does it need to be tied to profits. While a plan may have a definite contribution formula, many plans use a discretionary formula under which the employer determines each year how much to contribute.
A Cross-Tested or Age-Based Plan is an employer-sponsored Profit Sharing Plan that favors older, long-term employees, who, by age, are closer to retirement. Unlike traditional Profit Sharing Plans, which may provide a flat dollar amount or a flat percentage formula for each participant, the participant's age, service and compensation are taken into account when determining the allocation of these contributions.