A Deferred compensation plan is a nonqualified plan used for a select group of corporate executives. The plans are used to recruit, retain and reward top executives. Many times these programs are implemented to provide pre-tax income deferral opportunities that many executives do not have because of 401K contribution limits.
Some of the key features of deferred compensation are:
- Plan participants save money on a pre-tax basis
- Defer taxes on earnings associated with the income until distribution
- Allocate income deferred among investment options
- The employer can pick and choose among the recipient employees without regard to years of service, salary level or any other criteria
- The plan is not subject to qualified plan limitations on the amount of annual income that may be deferred to the plan