Randy Eschels photo

Randy Eschels, CLU, ChFC, CFP®

 

Eschels Financial Group, Inc.

555 S Old Woodward Avenue, Suite 612

Birmingham, MI 48009

 

Phone:  248-644-1144

             800-969-9990

Fax:      248-644-7820 

 

Email: randy@eschelsfinancial.net

Website: www.efg-ida.com

May/June 2020

Attract Top Talent

Attract Top Talent

When you need to recruit the very best executives, offering a nonqualified deferred compensation package can help separate you from your competitors.


Nonqualified Defined
The IRS defines a nonqualified deferred compensation (NQDC) plan as an elective or non-elective plan, agreement, method or arrangement between an employer and an employee that pays compensation in the future. In comparison to qualified plans, NQDC plans do not typically provide the tax benefits associated with qualified plans.


Types of NQDC Plans
Companies may structure NQDC plans in a variety of ways. They might defer a portion of an executive’s salary, pushing it into the future where it can help supplement retirement income, while reducing current taxable income. Executive bonus plans operate on the same premise, deferring bonus income to the future. These plans may defer nonqualified contributions from employers and employees above what qualified plans allow.


Employer Points
Even without the tax advantages of qualified plans, NQDC plans benefit employers because an unfunded arrangement frees up working capital. One efficient way for an employer to prefund the plan is to purchase life insurance on the employee to pay benefits upon retirement. When employers prefund an NQDC plan, the amount also may be tax-deductible. Consult your tax professional.


Employee Points
Executives like NQDC plans because they don’t have a contribution limit. They may negotiate an agreement that annually defers much more money than allowed by qualified plans. And, unlike qualified plans, NQDC plans normally don’t require minimum distributions.


However, a company’s bankruptcy can expose NQDC money to the claims of creditors and there are no guarantees any company won’t go out of business, which can put the employee’s deferred compensation at risk. Those with unfunded NQDC benefits must also rely on their companies’ financial strength. Early distribution, loans and rollovers of plan funds are not allowed and FICA taxes may apply upon distribution. And if employees leave before a contractually agreed-upon term, they can forfeit all or a portion of benefits.


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Investment Advisor Services offered through Investment Advisors, a Registered Investment Advisor and a division of ProEquities, Inc. Securities offered through ProEquities, Inc., a Registered Broker-Dealer, Member FINRA & SIPC. Eschels Financial Group, Inc. is independent of ProEquities, Inc. Eschels Financial Group, Inc. and LTM Marketing Specialists LLC are unrelated companies. This publication was prepared for the publication’s provider by LTM Client Marketing, an unrelated third party. Articles are not written or produced by the named representative.

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