In many cases, deferral limitations imposed by the Internal Revenue Code can prevent executives from accumulating sufficient retirement wealth. One option that employers can provide is a Benefit Restoration Plan (BRP). These plans are Non-Qualified Deferred Compensation Plans that are designed to restore lost corporate contributions as a result of government limitations. Annual contributions are made to the BRP by the employer, on behalf of the executive and can help to build a comfortable benefit for the employee’s future financial security.
BRPs are highly selective programs that are intended to motivate and retain talented executives. They are also awarded as an incentive to motivate an executive’s continued hard work and efforts to grow the business.
Upon retirement, the employer pays a lump sum or series of annual retirement benefit payments to the employee. This is taxed as ordinary income to the executive in the year it is received and is deductible to the employer in the year it is paid. If the executive dies before retirement, the employer pays the spouse or other surviving beneficiaries. The payout is similarly taxed as ordinary income to the employee’s heirs in the year it is received and remains deductible to the employer in the year or years in which it is paid.