Non-qualified Plan

A non-qualified plan is a deferred compensation arrangement that does not have to satisfy the qualification rules of qualified plans and so does not reap the tax advantages. The plan is generally unfunded - the assets belong to the employer until distributed.

Non-Qualified Plans meet a variety of objectives:

▪Provide a mechanism to recruit, reward and retain the talented and experienced employees needed to help manage the growth of the business.

▪Overcome the limitations of qualified retirement plans by providing enhanced retirement income to top employees.

▪Allow the business to tie key employees to the business through golden handcuffs.

▪Structure the program to the mutual advantage of the business and the key employees.

Advantages 

•Benefits provided for a select group of highly compensated or management employees.

•Few tax law constraints.

•Provides substantial retirement benefits for a select group or individual key employees.

•Creates a golden handcuff between the business and employee.

•Costs associated with the program can be partially or fully recovered if informally funded with life insurance.

•Employee receives enhanced retirement benefits.

•Employee incurs no current income tax costs.

Disadvantages

•Employer receives a tax deduction only after benefits are paid.

•Investment earnings are taxable to employer, unless informally funded with life insurance.

•Assets are subject to claims of the employer's creditors.