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NEW! Risks Of Nonqualified Deferred Compensation: Examples From Court Cases

Income deferred in any type of nonqualified deferred compensation (NQDC) plan is subject to risks. That is because the plan must be unfunded for plan participants to avoid current taxation on deferred income. Even the informal funding of NQDC plans—e.g. …

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Key Points in This Article
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.
It is helpful to look at real-life situations involving NQDC where litigation was necessary.
The use of a rabbi trust or "springing" rabbi trust can alleviate some of the risks in NQDC plans.