Obviously, nobody asked the marketing guys before coming up with this one. Who in the world thought up the name “non-qualified deferred compensation?” Oh, it’s descriptive alright. But who wants anything “non-qualified?” Do you want a “non-qualified” doctor, lawyer, or accountant? What’s worse is deferring compensation. How many people want to work today and get paid in five years? The problem is, non-qualified deferred compensation is a great idea; it just has a lousy name.
Non-qualified deferred compensation (NQDC) is a powerful retirement planning tool, particularly for owners of closely held corporations (for purposes of this article, I’m only going to deal with “C” corporations). NQDC plans are not qualified for two things; some of the income tax benefits afforded qualified retirement plans and the employee protection provisions of the Employee Retirement Income Security Act (ERISA). What NQDC plans do offer is flexibility. Great gobs of flexibility. Flexibility is something qualified plans, after decades of Congressional tinkering, lack. The loss of some tax benefits and ERISA provisions...
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