Retirement - NonQualified Plans
What are the typical reasons loans are made to employees?
1. Mortgage or bridge loan for purchase of a house 2. College or private school tuition 3. Purchase of company stock through an employee stock plan. 4. Meeting extraordinary medical costs, tax bills, or other family emergencies. 5. Purchase of life insurance. 6. Purchase of a car, boat, or other luxury item.
What is a NonQualified Deferred Compensation Plan?
A nonqualified deferred compensation plan is any employer retirement, savings, or deferred compensation plan for employees that does not meet the tax and labor law (ERISA) requirements applicable to qualified pension and profit sharing plans.
What is a Rabbi Trust?
A rabbi trust is a trust set up to hold property used for financing a deferred compensation plan, where the funds set aside are subject to the employer's creditors. The IRS has ruled that trusts designed this way do not constitute formal funding in the tax sense. The DOL has a working premise that rabbi trusts meeting with the approval of the IRS will not cause excess benefit plans or top-hat plans to be funded for ERISA purposes.
What is a Salary Reduction Formula?
A salary reduction formula involves an elective deferral of a specified amount of the compensation that the employee would have otherwise received. The employer contribution under this type of plan could be in the form of a bonus, without actual reduction of salary.
What is an Excess Benefit Plan?
Excess benefit plans are designed to provide benefits only for executives whose annual projected qualified plan benefits are limited under the dollar limits of Code Section 415.
How are nonqualified plans taxed?
In the case of nonqualified plans, earnings are taxed currently to the employer (not tax deductible). The employer receives a tax deduction only once the employee has received the benefits of the plan or the benefits have been made available. Earnings are taxable to the employee when the funds are distributed to the employee or made available.
When should a NonQualified Plan be used?
Nonqualified plans can be used to fill many different needs. Some ways in which nonqualified plans may be used are: 1. Nonqualified plans can be designed for key employees without the sometimes prohibitive cost of covering a broad group of employees. 2. Nonqualified plans can provide benefits to executives beyond the limits allowed in qualified plans. 3. Nonqualified plans can provide "customized" retirement or savings benefits for selected executives.
What is a NonQualified Retirement Plan?
Nonqualified plans provide employees additional retirement benefits. These plans do not meet the requirements under ERISA. Nonqualified plans offer the employer a great deal of flexibility when designing the plan. The employer can decide who is to be included in the plan. He may want to include only the highly compensated employees or members of management.
What is a Salary Continuation Formula?
Salary continuation generally refers to a type of non-elective nonqualified deferred compensation plan that provides a specified deferred amount payable in the future. Sometimes referred to as a SERP (Supplemental Executive Retirement Plan).
