401(k) plans have addressed an important need; however, for many executives, the limitations on the annual contributions are far too restrictive to fulfill their needs. This is where a non-qualified deferred compensation plan is of value. Such a plan can be designed to mirror familiar features of basic 401(k) plans, but without the cap on the dollar amount saved or contributed. These plans allow for deferral of various forms of pay including: base, bonus, commissions, and special incentives. More flexible payout schedules can be arranged as well.
Retirement planning is one feature of today’s non-qualified deferred compensation plan designs. A plan that allows payouts before retirement can attract the younger executive who is planning for tuition payments while making it easier for more mature executives to build a cash reserve for future anticipated expenses, such as a retirement home.
Non-qualified deferred compensation plans can be formulated to meet a variety of needs. For example, your non-qualified plan could even allow an executive to elect distribution of four annual payments beginning in a future year to finance tuition and expenses for a child entering college that year. This is just another way that we can make the flexibility of this plan work for you. In addition, a non-qualified deferred compensation plan could be set up as a defined benefit plan or a defined contribution plan.