“Deferred Compensation” is an arrangement where an Employer holds part of an Employee’s income or compensation until a later date.
Deferred Compensation plans are considered either Qualified Deferred Compensation or Non-Qualified Deferred Compensation. A company with a Qualified Deferred Compensation plan must offer the plan to all of its Employees. Qualified Deferred Compensation plans offer certain Creditor protections and contribution caps, and include the following types of plans:
- Pension Plans;
- 401(k) Plans;
- 403(b) Plans; and
- 457 Plans.
Non-Qualified Deferred Compensation plans can be offered to any Employee or Independent Contractor, have no caps on contributions and are more flexible then Qualified Deferred Compensation plans. Non-Qualified Deferred Compensation can be an effective way to incent Employees to stay at the company. The benefits of a Non-Qualified Deferred Compensation plan often are subject to a Vesting Schedule such that the Employee’s rights to the benefits accrue over time.
Some examples of Non-Qualified Deferred Compensation plans include:
- Stock Option Plans;
- Supplemental Executive Retirement Plans (SERPs); and
- Deferred Savings Plans.