|Non-Qualified Deferred Compensation Plans|
| Eddie Diaz, President
Diaz Strategies Insurance and Financial Solutions
In today’s job market, a good salary may no longer be enough to lure or retain key employees. In many cases, it comes down to what “extras” a company has to offer. Some companies focus on helping their employees balance personal and professional responsibilities by offering such perks as flex time, on-site daycare, dress-down work attire, gym membership, personal concierge services, and the like. Other companies focus on financial incentives, like stock options or pension plans. However, when it comes to the competitive market for high-level employees and executives, companies might have to go even further. A non-qualified deferred compensation agreement may be the right incentive for joining a company or staying with a company in the face of another offer.
Some non-qualified deferred compensation agreements allow for an employee or owner-employee to defer a portion of current compensation –– either as a reduction in current salary or a deferral of a raise or bonus, both of which could lower the employee’s tax bracket. In exchange, the employer provides an unsecured promise to pay compensation at some predetermined date or event, such as retirement. Other types of non-qualified deferred compensation agreements are called Supplemental Employee Retirement Plans (SERPs). In a SERP, the employer agrees to provide retirement, disability or death benefits to a key employee in addition to current compensation.
Similarly, there are many benefits to the employee. An offer of a non-qualified deferred compensation plan to an executive shows recognition and appreciation for his or her contributions to the success of the business. Furthermore, a non-qualified deferred compensation plan can help supplement existing retirement benefits or provide for family if death occurs prior to retirement. Perhaps the greatest benefit, though, is tax deferral. Employees offered non-qualified deferred compensation plans are usually highly compensated –– which means that they are near or at the top of their tax bracket. A properly constructed non-qualified deferred compensation plan may allow an employee to pay lower income taxes on current compensation because the deferred compensation is not counted in current income. And when the deferred compensation is paid, the employee will probably be in a lower retirement tax bracket.
Using Life Insurance to Fund a Non-Qualified Deferred Compensation Plan
Consult Your Advisors
For more information about how life insurance can help fund a non-qualified deferred compensation plan, please contact Eddie Diaz, President, Diaz Strategies Insurance and Financial Solutions, at (480)840-2165. Please consult your professional tax and legal advisors regarding your particular situation.