Non-Qualified DEFERRED COMPENSATION PLANS
Non-qualified deferred compensation (NQDC) plans allow executives to voluntarily defer, pre-tax, otherwise currently taxable compensation – including salary, bonus, incentives and commissions. These deferred dollars grow tax-free until a future specified date—retirement, termination, death or disability— whereupon payouts would be subject to the executive’s tax rate at that time.
NQDC plans are relatively inexpensive to provide and allow executives to take charge of their coverage options, making them attractive from both the executive and corporate vantage point.
Why Choose a Non-Qualified DEFERRED COMPENSATION PLAN?
NQDC plans identify and fill gaps in retirement shortfalls. These plans provide coverage over and above group insurance and disability coverage.
BENEFITS FOR COMPANIES
- Improve earnings
- Help to make benefits best in class
- Reduce corporate taxes
- Create asset-liability matches
BENEFITS FOR EXECUTIVES
- Income tax relief via unlimited pre-tax deferral of salary, bonuses, commissions, etc.
- Tax-deferred earnings on account balances
- A quality menu of diverse investment alternatives
- Enhanced planning flexibility for life-event purposes (college education, etc.), as well as retirement
- Scheduled distributions without an early withdrawal penalty [10% in a 401(k)]
PLAN MANAGEMENT AND OVERSIGHT THAT MAXIMIZES CLIENT BENEFITS
At Todd, we’re on top of changing legislative and regulatory issues surrounding benefits plans, so our clients don’t need to be. We help businesses maximize benefits for their high performers, which means understanding the intricacies of the Internal Revenue Code and other regulatory matters.
Section 409A of the IRC applies to all nonqualified deferred compensation plans. It dictates the rules for when deferral elections can be made, when distributions can be taken, and prevents participants from receiving distributions on a faster schedule than what was originally elected.
409A PENALTIES. Participants that do not follow Section 409A rules risk losing the tax-deferred status of the plan and having all previous plan deferrals declared immediately taxable at the participant’s regular tax rate—plus a 20% penalty tax.
Let Todd help you navigate.