General Securities Sales Supervisor (Series10) Practice Exam

What is the requirement for contributions to a corporation's profit sharing plan in a year when there is no profit?

1. A cannot be made by the company

2. B can be made at the company's discretion

3. C must be made by the company

4. D must be made only if the plan is underfunded

The correct answer is: B can be made at the company's discretion

In a profit-sharing plan, contributions are tied to the company's profitability, and the absence of profits does not create an obligation for the company to make contributions. However, the company has the discretion to contribute even in a year without profits, meaning it can choose to make contributions based on other factors such as future expectations or to maintain employee morale. This flexibility allows companies to manage their financial resources while still potentially providing benefits to employees. Other options imply a more rigid requirement or condition for contributions, which does not align with the discretionary nature allowed by profit-sharing plans. Thus, recognizing that contributions can be optional depending on the company's financial strategy highlights the correct understanding of how these plans operate.