myNQDC.com Alert: Latest Expert Insights, May 12, 2011

Thank you for being a member of myNQDC.com, the most comprehensive online resource on nonqualified deferred compensation plans. The popularity of the website continues to grow among both NQDC professionals and participants. In recent weeks, we have enriched our content with both crucial updates and exclusive new articles and FAQs on key NQDC topics.

Selected New Content

Participant Viewpoint: Tax Strategies With Options & Deferred Compensation. Having both nonqualified stock options and nonqualified deferred compensation gives you a tremendous amount of flexibility to optimize your financial planning and tax situation. In this article, CPA and NQDC participant Andy Wagner explain how he uses the two plans in concert with one another.

College Financial Aid & Funding With Nonqualified Deferred Compensation (Parts 1 and 2). In line with our mission to cover all areas of NQDC-related financial planning, this new two-part article by Troy Onink explains the role of NQDC in preparing and paying for the costs of higher education. Mr. Onink, a college-funding expert and Forbes blogger, explains in Part 1 the impact NQDC can have on eligibility for financial aid. In Part 2, he discusses the use of the American Opportunity Tax Credit and financial-planning strategies to explore.

Are there different types of services and fees for rabbi trusts? These vary according to the service capabilities of the trustee and the provisions of the rabbi trust agreement. For this new FAQ, myNQDC.com asked Jeff McCarthy of Deferral.com and Mike Hlavin of Wilmington Trust for their input on this topic. As they explain, the nature of the trust agreement provides for various types of relationships between the trustee and the company, and there are some potential issues to watch for.

Can I protect my NQDC plan when my company is acquired? Change-in-control transactions (e.g. a merger or acquisition) do raise some risks for nonqualified deferred compensation. While they are not always as severe as the risks arising from corporate bankruptcy, they can create a situation in which your payout may not occur. This FAQ presents a few ways to protect yourself, including recommendations provided by Winston & Strawn attorney Michael Melbinger, a member of the myNQDC.com advisory board.

Has the likelihood of a tax audit increased? Fluctuations of income, including sudden increases from NQDC distributions, can be a red flag triggering a dreaded audit by the IRS—especially now. The IRS Data Book has disclosed a large increase in audits among people with adjusted gross income of more than $500,000 per year, and a particularly big jump for those with income over $5 million. As this FAQ explains, normally the IRS can perform audits only within a three-year statute of limitations, but in some circumstances it can obtain a six-year statute of limitations for what it believes to be “substantial underreporting of income.”

See myNQDC.com for these additions and other updates.

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