bviously, nobody asked the provisions of the Employee
marketing guys before Retirement Income Security Act
coming up with this one. (ERISA). What NQDC plans do offer
Who in the world thought up the is flexibility. Great gobs of
name "non-qualified deferred flexibility. Flexibility is
compensation?" Oh, it's something qualified plans, after
descriptive alright. But who decades of Congressional
wants anything "non-qualified?" tinkering, lack. The loss of some
Do you want a "non-qualified" tax benefits and ERISA provisions
doctor, lawyer, or accountant? may seem a very small price to
What's worse is deferring pay when you consider the many
compensation. How many people benefits of NQDC plans.
want to work today and get paid
in five years? The problem is, A NQDC plan is a written contract
non-qualified deferred between the corporate employer
compensation is a great idea; it and the employee. The contract
just has a lousy name. covers employment and
compensation that will be
Non-qualified deferred provided in the future. The NQDC
compensation (NQDC) is a powerful agreement gives to the employee
retirement planning tool, the employer's unsecured promise
particularly for owners of to pay some future benefit in
closely held corporations (for exchange for services today. The
purposes of this article, I'm promised future benefit may be in
only going to deal with "C" one of three general forms. Some
corporations). NQDC plans are not NQDC plans resemble defined
qualified for two things; some of benefit plans in that they
the income tax benefits afforded promise to pay the employee a
qualified retirement plans and fixed dollar amount or fixed
the employee protection percentage of salary for a period
of time after retirement. Another the tax deferral feature of
type of NQDC resembles a defined qualified plans can be simulated.
contribution plan. A fixed amount Properly drafted, NQDC plans do
goes into the employee's not result in taxable income to
"account" each year, sometimes the employee until payments are
through voluntary salary made.
deferrals, and the employee is
entitled to the balance of the To obtain this flexibility both
account at retirement. The final the employer and employee must
type of NQDC plan provides a give something up. The employer
death benefit to the employee's loses the up-front tax deduction
designated beneficiary. for the contribution to the plan.
However, the employer will get a
The key benefit with NQDC is deduction when benefits are paid.
flexibility. With NQDC plans, the The employee loses the security
employer can discriminate freely. provided under ERISA. However,
The employer can pick and choose frequently the employee involved
from among employees, including is the business owner which
him/herself, and benefit only a mitigates this concern. Also
select few. The employer can there are techniques available to
treat those chosen differently. provide the non-owner employee
The benefit promised need not with a measure of security. By
follow any of the rules the way, the marketing guys have
associated with qualified plans gotten hold of NQDC plans, so
(e.g. the $44,000 for 2006) you'll see them called
annual limit on contributions to Supplemental Executive Retirement
defined contribution plans). The Plans or Excess Benefit Plans
vesting schedule can be whatever among other names.
the employer would like it to be.
By using life insurance products,
About the Author:
http://www.investmy401k.com
Source: www.isnare.com
