Advantages of a Non-Qualified Deferred Compensation Plan

A non-qualified deferred compensation plan serves as a valuable tool for employers to attract and retain key talent, provide additional retirement benefits, and demonstrate a commitment to the long-term financial success of their key employees.

Let’s break down the advantages of a non-qualified deferred compensation (NQDC) plan in simple terms:

Flexibility in Benefit Design

An NQDC plan provides flexibility in designing benefits. As an employer you have the freedom to tailor the plan to meet the specific needs and goals of your key employees, allowing for a customized approach.

Attracting and Retaining Top Talent

Offering an NQDC plan is an attractive benefit for key employees. It helps in attracting and retaining top talent by providing an additional incentive that goes beyond regular salary and traditional benefits.

Supplemental Retirement Income

The NQDC plan allows key employees to defer a portion of their income, which can serve as a supplemental source of retirement income. This extra financial cushion enhances their overall financial security in retirement.

Tax Deferral

One of the primary advantages is the ability to defer taxes. Key employees can defer a portion of their compensation, reducing their taxable income in the current year. Taxes are paid later when the deferred compensation is distributed, potentially at a lower tax rate in retirement.

Employer Contribution Flexibility

Employers can contribute to the NQDC plan on behalf of key employees. This provides an additional way for you, as a business owner, to invest in and reward key contributors without the same regulatory constraints as qualified retirement plans.

Retention and Loyalty

By offering an NQDC plan, you demonstrate a long-term commitment to your key employees. This commitment fosters loyalty and a sense of security, as employees appreciate the opportunity to accumulate additional savings for their future.

Wealth Accumulation

The plan allows key employees to accumulate wealth over time. Contributions made to the NQDC plan can be invested, potentially growing over the years and creating a substantial nest egg for retirement.

Estate Planning Benefits

The NQDC plan can offer benefits in terms of estate planning. It provides an additional tool for key employees to structure their financial affairs and plan for the transfer of wealth to their heirs in a tax-efficient manner.

Competitive Advantage

Offering an NQDC plan can set your business apart from competitors. It positions your company as forward-thinking and committed to the financial well-being of its key employees, enhancing your overall competitiveness in the talent market.