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.