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NQDC Alert: Three New Articles Explore The Rules, Risks, And Rewards Of NQDC Plans

Weighing the strategic tradeoffs of risks and rewards, while following the complicated rules, is a crucial part of planning for income deferrals through a nonqualified deferred compensation (NQDC) plan. Three new articles at myNQDC discuss some of the key issues to consider.

The Proposed GOP/Trump Tax Cuts: Good Or Bad For Pretax Compensation Deferral?

The Trump presidency and the current Republican-controlled Congress continue to express interest in lowering federal tax rates, but delays and political obstacles have clouded the legislative prospects of tax reform. Does this uncertainty mean you should stop deferring compensation into your company’s NQDC plan or increase your deferrals? Of course, planning NQDC deferrals depends on many factors, not just your tax outlook. Interestingly, however, the proposed tax decreases, with just three tax brackets, may make deferral more appealing. In an insightful new article, executive-benefits consultant David Hauptman (Pinnacle Financial Group) explores the issues you should be thinking about when considering income deferral now.

To Defer Or Not To Defer? Same-Year Deferral Decisions

While most NQDC plans permit deferral elections only at the end of the year, and only for income earned in the following year, in certain circumstances you may be eligible to defer current income in mid-year under the rules of IRC Section 409A. That may be the case if you become newly eligible to participate in your company’s NQDC plan, your company creates a new NQDC plan, or you can defer performance-based compensation. A new article by attorney David Zelikoff, a partner at Morgan Lewis & Bockius, explains the ins and outs of same-year deferrals.

Risks Of Nonqualified Deferred Compensation: Real-Life Examples From Court Cases

Two of the greatest non-tax-related risks associated with NQDC are (1) the inability of the employer to pay benefits, e.g. because of corporate bankruptcy, and (2) a refusal to pay promised benefits. When presented theoretically, these risks are often misunderstood or underappreciated by plan participants. For that reason, it is helpful to look at actual situations involving NQDC where litigation was necessary. A new article by Richard Friedman, an executive benefits and compensation expert at The Ayco Company, presents a few examples from court cases that show the necessity of careful thought and planning to minimize risks in nonqualified deferred compensation.

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