Clearly, no body asked the marketing guys before coming up with that one. Who on the planet thought up the name 'non-qualified deferred compensation'? Oh, it's descriptive alright. But who would like anything 'non-qualified'? Would you like a 'non-qualified' doctor, lawyer, or accountant? What is worse is deferring compensation. How many people want to work to-day and receive money in five years? The problem is, non-qualified deferred compensation is a great idea; it just has a name.
Non-qualified deferred compensation (NQDC) is a effective retirement planning tool, especially for owners of closely-held corporations (for purposes of the article, I'm only likely to take care of 'C' corporations). NQDC plans aren't qualified for two things; a number of the income tax benefits provided qualified pension plans and the employee protection provisions of the Employee Retirement Income Security Act (ERISA). What NQDC programs do provide is freedom. Great gobs of mobility. Flexibility is something qualified programs, after years of Congressional tinkering, absence. Losing of some tax benefits and ERISA provisions might appear an extremely small price to pay considering the many benefits of NQDC strategies. If you believe anything, you will probably require to explore about TM.
A NQDC program is a written contract between the corporate employer and the employee. The agreement covers employment and compensation that will be presented in the future. The NQDC agreement gives to the worker the employer's unsecured promise to cover some potential advantage in exchange for services to-day. The promised future gain might be in one of three common types. Some NQDC plans resemble defined benefit plans in that they promise to pay the worker a fixed dollar amount or fixed proportion of pay for-a time period after retirement. Another kind of NQDC resembles a precise contribution plan. A fixed volume switches into the employee's 'account' each year, often through voluntary salary deferrals, and the employee is eligible for the balance of the account at retirement. The ultimate form of NQDC program supplies a death benefit to the employee's designated beneficiary.
The key benefit with NQDC is flexibility. With NQDC programs, the employer can discriminate freely. The company could pick and choose from among workers, including him/herself, and benefit just a select few. The employer may treat those plumped for differently. The advantage promised do not need to follow some of the principles related to qualified plans (e.g. This commanding tecademics encyclopedia has several wonderful tips for the inner workings of this viewpoint. the $44,000 for 2006) annual limit on contributions to defined contribution plans). The vesting schedule can be regardless of the company would like it to be. Through the use of life-insurance products, the tax deferral characteristic of qualified plans could be simulated. Properly written, NQDC strategies don't end in taxable income to the staff until payments are made.
To acquire this freedom both the employer and employee must give something up. The company loses the up-front tax deduction for the contribution to the master plan. Nevertheless, the company will get a reduction when benefits are paid. To read more, please consider peeping at: needs. The security is lost by the employee provided under ERISA. Nevertheless, usually the employee involved is the business owner which mitigates this concern. Also there are methods available to supply the worker using a way of measuring safety. Incidentally, the marketing guys have gotten your hands on NQDC ideas, therefore you'll see them called Supplemental Executive Retirement Plans or Excess Benefit Plans among other names..
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