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HUMAN RESOURCES

Profit Sharing?

A discussion of the benefits of profit sharing for small growing companies.
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According to Mac McConnell, the owner and president of Artful Framer Gallery, a company can never be too small to benefit from a well-designed profit-sharing plan. His own $600,000 business, in Fort Lauderdale, Fla., set one up six years ago when it employed only five people, including McConnell. Today Artful Framer has a staff of eight and a profit-sharing plan that has amassed $150,000 in retirement savings, which "has become a very important benefit for everyone, including myself," McConnell says. He discounts the following objections typically raised by growing businesses when considering profit-sharing plans:

They're too inflexible, especially during bad years. "I've committed myself to paying 15% of every person's salary every year, which I believe is an important step in teaching everyone -- including myself -- how important it is to save regularly." There's one crucial proviso: he says he can "underfund" the plan if the company's financial performance necessitates it. He believes profit sharing's advantages outweigh the costs: "The plan makes employees happier and more committed to the company, which helps us produce better results than if they were uncertain about their benefits packages."

They're too complicated and costly to administer. "Not true," says McConnell. "We've got a broker who handles our relatively conservative investment strategy -- on a commission basis -- and a tax lawyer who administers the plan and handles the paperwork for between $600 and $800 a year." McConnell points out that he couldn't keep up with the tax rules himself because they change constantly and require full-time monitoring.

Profit-sharing plans don't retain workers. "One of our employees did leave, with a $14,000 payment from the plan. But if you design a good vesting schedule, it will encourage people to stay as they watch their savings grow. At Artful Framer, we vest 20% after only two years, and then 20% more each additional year."

Owners take the financial risks, but employees get all the benefits. "That is the biggest misconception of all," McConnell emphasizes. "Because the company contributes a percentage of each person's salary, the owner naturally gets the lion's share of contributions. I can tell you that the bulk of money in our plan has my name on it -- and is probably money that I would never have saved if the plan were not in place and the company had not been committed to making annual contributions."

* * *

If you want some good basic information on how profit-sharing plans work, contact the large investment firms, advises Daniel Maul, owner of Retirement Planning Associates, in Kirkland, Wash. "Mutual-fund houses are often great sources of accessible, free information on retirement plans," says Maul, who particularly likes publications from Vanguard (800-662-7447).

Last updated: Nov 1, 1993




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