In a profit sharing plan allowing participants to invest their balances, how must earnings and contributions be allocated?

In a profit-sharing plan that allows participants to invest their balances, earnings and contributions must be allocated monthly to ensure that participants can accurately see the impact of their contributions and investment performance in a timely manner. Monthly allocation reflects the fluctuating nature of investment markets, providing participants with regular updates that can inform their investment choices and strategies. This frequent allocation helps in managing and tracking the growth of their accounts more effectively and encourages ongoing engagement with their retirement savings and investment decisions.

An annual or less frequent allocation could lead to significant discrepancies in account balances due to market volatility, delaying participants' ability to react to changes in their investments. Therefore, the requirement for monthly allocations supports improved transparency and responsiveness to market conditions, ultimately benefiting the participants in their investment planning.