Non-qualified Deferred Compensation Plans

Non-qualified deferred compensation plans can help provide extra benefits for key executives and employees who are interested in supplementing their retirement income on a tax-deferred basis.

Advantages for Employers:

  • Recruit, reward and retain skilled executives
  • Limit a plan to a select group of executives or highly compensated employees
  • Minimal ERISA reporting
  • Flexibility in the design of the plan

Advantages for Employees:

  • Defer more income towards retirement
  • May be placed in a lower tax bracket later
  • Assists in obtaining sufficient retirement income
  • Helps ensure that employees’ heirs will be provided for

How Life Insurance Can Help

Since the inside buildup of life insurance is tax-deferred, use of life insurance in a deferred compensation arrangement allows the employer to invest the plan contributions on a tax-deferred basis. The death benefit payable to the employer is generally income tax-free and can be used to pay any pre-retirement plan benefit or pay any post-retirement benefits. Our life products can be used in conjunction with different types of deferred compensation plans.

  • A supplemental executive retirement plan (SERP) uses employer dollars to provide select executives with supplemental retirement income.
  • In a salary deferral plan, the employee agrees to defer a stated amount or percentage of compensation in exchange for benefits starting at retirement or death. The employer receives a tax deduction at payout.
  • A 401(k) overlay plan allows the employee to put more dollars aside for retirement than would otherwise be possible in a 401(k) plan by contributing the excess available to a nonqualified plan.

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