What Is NQDC Ideas

Obviously, nobody asked the marketing and advertising guys just before coming up with this 1.  Who within the planet believed up the title “non-qualified deferred compensation?”  Oh, it really is descriptive alright.  But who wants anything “non-qualified?”  Do you need a “non-qualified” doctor, lawyer, or accountant?  What’s even worse is deferring compensation.  How numerous people want to work today and get paid in five years?  The problem is, non-qualified deferred compensation is a great concept; it just has a lousy title.

Non-qualified deferred compensation (NQDC) can be a effective retirement planning tool, especially for owners of closely held companies (for purposes of this article, I’m only planning to deal with “C” companies)  NQDC strategies are not qualified for two issues; some with the income taxes benefits afforded qualified retirement strategies as well as the staff protection provisions from the Worker Retirement Revenue Security Act (ERISA)  What NQDC ideas do offer you is freedom.  Great gobs of versatility.  Versatility is one thing certified plans, after decades of Congressional tinkering, lack.  The loss of some taxes rewards and ERISA provisions may seem a really little cost to pay once you take into account the many benefits of NQDC ideas. 

A NQDC program is really a written contract between the corporate employer and the worker.  The contract covers employment and compensation that will probably be provided in the upcoming.  The NQDC agreement gives for the worker the employer’s unsecured promise to pay some future gain in exchange for services nowadays.  The promised future gain might be in a single of 3 general forms.  Some NQDC plans resemble defined gain plans in that they promise to pay out the staff a fixed dollar sum or fixed percentage of salary for any time frame after retirement.  Another type of NQDC resembles a defined contribution strategy.  A fixed quantity goes into the employee’s “account” each and every year, occasionally by means of voluntary salary deferrals, and also the staff is entitled for the balance of the account at retirement.  The final type of NQDC program provides a death advantage towards the employee’s designated beneficiary.

The key benefit with NQDC is freedom.  With NQDC ideas, the employer can discriminate freely.  The employer can pick and pick from between staff, including him/herself, and advantage only a choose few.  The employer can treat those chosen differently.  The benefit promised need not follow any with the guidelines linked with competent plans (e.g. the $44,000 for 2006) annual limit on contributions to defined contribution ideas)  The vesting schedule may be whatever the employer would like it to be.  By making use of lifestyle insurance items, the tax deferral feature of competent strategies may be simulated.  Correctly drafted, NQDC strategies usually do not result in taxable income for the employee until payments are made. 

To obtain this versatility each the employer and employee should give one thing up.  The employer loses the up-front taxes deduction for that contribution towards the strategy.  Nevertheless, the employer will get a deduction when rewards are paid.  The employee loses the security offered under ERISA.  However, regularly the staff included could be the company owner which mitigates this concern.  Also you can find strategies obtainable to supply the non-owner worker with a measure of security.  From the way, the advertising guys have gotten hold of NQDC ideas, so you’ll see them called Supplemental Executive Retirement Plans or Excess Advantage Strategies between other names.

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