Deferred Comp/Supplemental Executive Retirement Plans
Highly compensated owner-operators or executive-level employees will typically achieve retirement income of about 10%-30% of their final compensation. This is due to qualified plan (401(k), etc.) statutory caps.
A nonqualified deferred-compensation plan is any employer retirement, saving or deferred-compensation plan for employees that does not meet the tax and labor law (ERISA) requirements applicable to qualified pension and profit-sharing plans.
These plans are only usable by regular corporations (No S-Corps).
When is it appropriate?
When an employer wants to provide additional deferred-compensation benefits to a key person or highly compensated executive who is already receiving the maximum benefits or contributions under the corporation's qualified retirement plan.
Plan types
- Salary-continuation plans: This type of plan uses employer contributions to fund the ultimate compensation benefit.
- Salary-reduction plans: This plan (also called a pure deferred-compensation arrangement) uses some portion of the employee's current compensation to fund the ultimate compensation benefit.
These plans can be very useful, but do require a competent and knowledgeable team to implement and manage. Please contact me to schedule a complimentary consultation.
