Non-Qualified Deferred Compensation

A Non-Qualified Deferred Compensation (NQDC) plan is any arrangement between an employer and an employee to pay the employee compensation some time in the future. Because the ownership of the compensation has not been transferred to the employee, it is not yet part of the employee's earned income and therefore is not counted as taxable income. Despite their many names, NQDC plans typically fall into four categories:

• Salary Reduction Arrangements defer the receipt of otherwise currently includible compensation by allowing the participant to defer receipt of a portion of his or her salary.

• Bonus Deferral Plans resemble salary reduction arrangements, except they enable participants to defer receipt of bonuses.

• Top-Hat Plans (aka Supplemental Executive Retirement Plans) are NQDC plans maintained primarily for a select group of management or highly compensated employees.

• Excess Benefit Plans are deferred compensation plans maintained by an employer to provide benefits for certain employees in excess of the IRC section 415 limitations for qualified plans.