NQDC

Non Qualified Deferred Compensation

When properly designed, Non Qualified Deferred Compensation (NQDC) plans can offer tax deferred benefits to a select group of key executives or a single employee without the rigid eligibility and non-discrimination requirements imposed on qualified plans by the Employee Retirement Income Security Act (ERISA). In addition to retirement plan benefits, NQDC plans may include disability or premature death benefits.

Who is NQDC for?

In general, any employer that

• wants to provide a competitive benefits package to help attract, retain and reward key employees
• has employees who have reached the maximum amount of allowed contributions to qualified plans
• has not implemented a qualified plan due to the high cost of including all employees or the administrative burden of such plans

Owners of Professional or C Corporations who would like to increase their personal retirement benefits may also want to consider a NQDC plan.

Note that NQDC plans are not appropriate for owner employees of S corporations, partnerships, Limited Liability Corporations and sole proprietors. Since these are flow through entities for income tax purposes, such plans provide no income tax benefits to the entity or the owners.

How does NQDC work?

Non Qualified Deferred Compensation (NQDC) is a contractual agreement whereby an employer promises to pay future benefits (typically at retirement) to a specific group of key employees (or a single employee) if certain conditions are met. As long as the plan is limited to a small group of management or highly compensated employees, the employer has a great degree of flexibility on how to structure the plan (including the ability to select the group of individuals to be included the plan).

• What are the NQDC retirement plans types?