Great Idea...Lousy Name
Below is a MRR and PLR article in category Finance -> subcategory Investing.
Great Idea, Poor Name
Rethinking Non-Qualified Deferred Compensation
Word Count: 539
Summary:
It seems no marketing experts were consulted when naming "non-qualified deferred compensation." While descriptive, the term "non-qualified" can be off-putting. After all, who wants a "non-qualified" doctor, lawyer, or accountant? Despite its uninspiring name, this concept is a valuable tool for retirement planning.Keywords:
Ohio, advice, help, 401k, retirement, IRA, investment, financialArticle:
The term "non-qualified deferred compensation" might not roll off the tongue as a marketing triumph. It may sound a bit unattractive?"is anything "non-qualified" desirable? Would you trust a "non-qualified" professional? Moreover, deferring compensation isn't exactly appealing; who wants to earn today and receive payment years later? Yet, despite its name, non-qualified deferred compensation (NQDC) is an excellent retirement planning tool, especially for owners of closely held corporations (particularly "C" corporations).
Though NQDC plans don't meet the criteria for certain tax benefits available to qualified retirement plans and lack the safeguards of the Employee Retirement Income Security Act (ERISA), they offer something invaluable: flexibility. After years of legislative tweaks, qualified plans lack this essential quality. The trade-off of some tax advantages and ERISA protections might be minor when considering the substantial benefits of NQDC plans.
NQDC is a written contract between a corporate employer and an employee, outlining future employment and compensation. It involves the employer’s unsecured promise to provide a future benefit in return for current services. These future benefits generally fall into three categories:
1. Plans similar to defined benefit plans that promise a fixed dollar amount or percentage of salary post-retirement.
2. Plans that resemble defined contribution plans, where a fixed amount is added to the employee’s "account" each year, sometimes through voluntary salary deferrals. The employee then accesses the account balance upon retirement.
3. Plans offering a death benefit to a designated beneficiary.
The primary advantage of NQDC is flexibility. Employers can select who benefits, including themselves, and offer tailored plans without adhering to the rigid rules of qualified plans. For example, there are no annual contribution limits like the $44,000 cap for defined contribution plans in 2006. Vesting schedules can also be customized. By incorporating life insurance products, the tax deferral feature of qualified plans can be mimicked, ensuring no taxable income to the employee until payments are made.
However, to gain this flexibility, both employer and employee must make sacrifices. Employers lose the up-front tax deduction for plan contributions, although they can deduct benefits when paid. Employees, on the other hand, forego ERISA-provided security. Yet, this concern is often mitigated if the employee is also the business owner. There are also strategies to offer non-owner employees a degree of security. Interestingly, marketing efforts have attempted to rebrand NQDC plans with names like Supplemental Executive Retirement Plans or Excess Benefit Plans.
In conclusion, while "non-qualified deferred compensation" might not sound enticing, its versatility in retirement planning makes it a worthwhile consideration.
You can find the original non-AI version of this article here: Great Idea...Lousy Name.
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