What type of retirement plan is typically defined by company profits shared with employees?

A profit-sharing plan is a type of retirement plan where a company contributes a portion of its profits to employees' retirement accounts. This model incentivizes employees by directly linking their retirement savings to the company's performance. In a profit-sharing plan, the contributions made can vary each year based on the company's profitability, which distinguishes it from more fixed plans like defined contribution plans that are typically funded annually at a set percentage.

Employees benefit from this arrangement because they can receive a larger contribution in more profitable years, which can significantly boost their accumulated retirement savings. Additionally, the contributions from the employer may also grow tax-deferred until withdrawal in retirement, providing a valuable savings vehicle for employees.

Other retirement options, such as defined contribution plans, have fixed contribution amounts not tied to profits, while cash balance plans involve a different structure where the employer provides a promised benefit in terms of account balances. A traditional IRA, on the other hand, is an individual retirement account that allows individuals to contribute a set amount annually, independent of employer profit sharing. Each of these alternatives serves different purposes, but none align as closely with the employer's practice of sharing profits with employees as a profit-sharing plan does.