A profit-sharing plan is a defined-contribution design in which the employer may have discretion over whether to contribute for a year. That contribution feature is not a §412 exemption. First determine whether a Title I plan exists, whether Part 4 applies, what property remains, and which natural persons handle it. IRS Publication 560 29 U.S.C. §1002 29 U.S.C. §1112
Use the §412 decision sequence
- 1Identify the actual retirement arrangement and confirm an employee pension benefit plan exists.
- 2Test Title I coverage, then Part 4 applicability.
- 3Identify the plan’s funds or other property.
- 4Identify each natural person whose functions constitute handling.
- 5Test exemptions separately for each person or institution.
- 6Calculate each nonexempt handler’s amount and review compliant form, live surety, and current reporting materials.
Plan and employee-census screen
Confirm that an employer-maintained pension plan exists and identify participating common-law employees. A plan covering only a sole owner or owner and spouse, or only partners and their spouses, can fall outside the employee-benefit-plan definition under DOL's census rule. “Profit-sharing,” “Keogh,” or “owner plan” does not decide that result, and adding an eligible common-law employee can change it. 29 U.S.C. §1002 29 C.F.R. §2510.3-3(b)–(c)
If the arrangement also includes elective salary deferrals, use the 401(k) guide for that feature. Discretionary employer contributions remain the distinct issue here; neither tax qualification nor the design name substitutes for the Title I and Part 4 analysis. IRS Publication 560 29 U.S.C. §1003 29 U.S.C. §1101
Trace retained property and authority
Review trust and custodial statements, prior contributions and earnings, forfeiture or suspense accounts, cash, and investments. Then identify people who can receive or transfer funds, release distributions, sign or direct payments, exercise final investment authority, or supervise those functions. A service provider's exemption, if established, does not exempt sponsor personnel who also handle property. FAB 2008-04, Q5–Q8 and Q17–Q21 29 C.F.R. Part 2580, Subpart F
Facts that change the answer
- Whether common-law employees participate, including changes since the arrangement was described as owner-only. 29 C.F.R. §2510.3-3(b)–(c)
- Whether Title I and Part 4 apply; tax qualification and discretionary contributions are not substitutes for those tests. 29 U.S.C. §1003 29 U.S.C. §1101
- Whether property from earlier years remains even when the current employer contribution is zero. FAB 2008-04, Q17
- Which natural persons have actual transfer, distribution, investment, signature, or supervisory authority. 29 C.F.R. §2580.412-6
- Whether the plan has a 401(k) feature or actually holds employer securities; route those issues to their dedicated guides rather than changing the result from the profit-sharing label. 29 U.S.C. §1112
Example: a zero contribution year with retained property
Assume a private profit-sharing plan covers employees, the employer elects to contribute $0 this year, and the trust still holds $800,000 from prior years. The zero contribution does not establish that there is no property to handle. Identify the people who can transfer investments or release distributions, test any person-specific exemption, and calculate only for nonexempt handlers using their preceding-year amounts—not automatically the $800,000 trust balance. FAB 2008-04, Q17–Q25 29 U.S.C. §1112
Handling is functional and person-specific. Custody, transfer power, disbursement or signature authority, final authority over investments or payments, and supervision of those functions can create a risk of loss. A fiduciary, officer, trustee, or provider title is not dispositive, and controls are relevant to whether handling exists rather than an independent exemption. 29 C.F.R. §2580.412-6 FAB 2008-04, Q5–Q8 and Q18–Q21
Move from retained-property facts to compliance review
Once retained property and nonexempt handlers are identified, the coverage calculation guide addresses the handler-specific amount. The requirements guide owns bond form, surety, and filing-year reporting review. 29 U.S.C. §1112 29 C.F.R. §2580.412-11
Methodology and legal boundary
This guide applies the federal ERISA §412 sequence to a plan category; it does not interpret a particular plan document, determine worker status, decide governmental or church affiliation, classify an ambiguous target-benefit design, or approve a bond form or surety. Use current documents, census and authority records, and obtain benefits counsel for unresolved classification facts. 29 U.S.C. §1002 29 U.S.C. §1003 29 U.S.C. §1101 29 U.S.C. §1112