Non Qualified Executive Compensation Plans

NQDC plans are not qualified, meaning they aren't covered under the Employee Retirement Income Security Act (ERISA), they offer a greater amount of flexibility for employers and employees. Unlike ERISA plans, employers can elect to offer NQDC plans only to executives and key employees who are most likely to use and benefit from them. In these plans earnings accumulate and there is no contribution limit- up top 100% of compensation can be contributed. There are no nondiscrimination rules, so deferral need not be offered to the rank-and-file. This gives the company considerable flexibility in tailoring its plan. The plans are used as “golden handcuffs” to keep valued staff on board because leaving the company before retirement can result in forfeiting deferred benefits. An NQDC plan can be a boon to cash flow since currently earned compensation is not payable until the future. However, the compensation is not tax-deductible to the company until it is actually paid. The costs of setting up and administering an NQDC plan are minimal. Once initial legal and accounting fees have been paid, there are no special annual costs, and there are no required filings with the Internal Revenue Service (IRS) or other government agencies.

Contact Two River Benefits to learn more about the employee retention benefits of a NQDC plan.