Some profit sharing plans have a 401(k) feature that allows eligible participants to defer a portion of their compensation into a retirement account. The money is contributed to the 401(k) plan on behalf of the participant instead of being paid as taxable compensation. In addition to the employee elective deferrals (also called salary deferrals), the employer may make profit sharing contributions to the plan according to the formula specified. The employer may also choose to make a matching contribution to the plan to reward employees who are deferring income to the 401(k) portion of the plan.
