What is a requirement of a profit-sharing plan?

In a profit-sharing plan, the company is not obligated to make contributions every year, making the option that states the company must make annual contributions incorrect. Instead, the correct understanding is that contributions to a profit-sharing plan are discretionary and based on the company's profitability. This means that while a company can choose to contribute in a profitable year, it is not mandated to do so each year.

The answer accurately reflects that the company can decide the timing and amount of contributions based on its financial status. This flexibility is one of the key features of profit-sharing plans, allowing businesses to adapt their contributions according to their financial circumstances, without the pressure of meeting fixed annual contribution levels. Additionally, there are no guarantees of returns, nor are employee contributions mandatory, which further supports the understanding of the profit-sharing plan's requirements.