Deferred Compensation

Principal

PLANSPONSOR SURVEY

Deferred Compensation FAQ

Delay pay to the future. With competing needs, long-term goals may get pushed back unless there’s a savings mechanism in place. That’s why company-sponsored benefit programs that affect pay before it’s received are often critical to building any kind of significant nest egg. Typical 401(k) plans and profit-sharing plans fail to generate sufficient retirement income for most management employees. That’s why many employers have added another layer for deferring — benefit plans that allow their higher earners to set aside additional amounts of their own salaries, bonuses and other compensation, as well as company contributions, until a future year, not unlike group retirement plans.

We will assist to design appropriate, attractive and affordable deferred compensation plans for highly compensated employees. We consider the employer’s objectives, potential financial impact, annual and daily administrative demands, and the plan’s ability to recruit and retain top employees. In the U.S, IRS 409A guidelines and provisions in the Pension Protection Act define how the plans work, while technology has simplified compliance and reinvented how plan participants access account information.

A deferred compensation plan (DCP) can provide the opportunity for significant benefits that can help your key executives bridge the retirement income gap. At the same time it can enhance your overall executive benefit program by offering additional incentives and retirement benefits, incorporating special features intended to retain the services of your top executives.

The U.S.Treasury directed the Internal Revenue Service (IRS) to work with companies and benefit advisors to produce guidelines for nonqualified plans. There are no governmental limits on the amounts that can be deferred in a DCP. The corporation decides who may participate in the program and how much they may defer. The corporation may also contribute an additional amount and/or match the executive’s contributions. Executive contributions would be immediately vested; any additional company amounts would vest according to plan design.

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