There are a number of companies that need to compensate their highly compensated employees, and keep them for a period of time. If the company has a large number of employees, creating a defined benefit plan would be too costly; there are alternatives if owners are willing to bend.
Non-qualified deferred compensation plans are outside of the ERISA rules, and allow corporations to create deferred compensation plans for employees they want to keep – without compensating other employees. There are several basic factors you need to know: One, the corporation has to be a C-corp. An LLC or S will not work since any compensation would be post-tax dollars. Two, the assets are kept on the balance sheets of the corporation, and are taxed as a non-qualified expense. The corporation can take the deduction when the employee takes distribution. Three, the employee should be sure that the employer will survive the duration of the agreement.
Non-qualified deferred compensation (“NQDC”) are solid plans, and used by many large corporations. I will write more about it in coming articles.
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