Deferred Compensation, Plan Valuation And Characterization

What Is A Deferred Compensation Plan?

Deferred compensation plans come in many different shapes and sizes. Some of these employment benefits may not be restricted by the rules and regulations of the Employee Retirement Income Security Act (ERISA) and thus can be structured to meet the specific needs and objectives of employees and employers. They may be granted to specific employees without regard to the benefits received by other employees. They are often complex in structure, difficult to value, and may present problematic enforcement issues. These benefits may not ever be received or may be received many years in the future. To the extent that a plan or a portion of a plan is earned during the marriage, that part will be characterized by the divorce court as community property.

What Is The Difference Between A Qualified And A Non-Qualified Deferred Compensation Plan?

A qualified deferred compensation plan must comply with all of the rules and regulations of the Employee Retirement Income Security Act (ERISA) and must be offered to all employees. An example of such a plan would be a 401(K) plan. Qualified plans have maximum contribution limits.

A non-qualified plan is not restricted by ERISA, does not have to be offered to all employees, may have a security risk in that there is no guarantee of payment and are unfunded obligations to the business.