Profit Sharing Plans allow contributions to vary from year to year depending on profitability, but Cash Balance Plans must be amended in order to change contribution levels.
Employers can designate different contribution amounts for various participants, but there is a restriction on the frequency of amendments unless a valid economic reason exists. For example, if a firm’s profits are not expected to support its Cash Balance Plan contribution, then the plan can be amended. Any reductions must be made before any employee works 1,000 hours during a plan year. For increases, the plan must be amended within two and a half months following the end of a plan year.
In addition, a Cash Balance Plan can also be frozen or terminated before an employee works 1,000 hours during a plan year.