Finding and hiring key employees helps your business grow and succeed. Conversely, key employees want to work for companies that value their work and offer unique benefits that make staying long-term make sense.
When it comes to great benefits, a nonqualified deferred compensation plan is a great place to start. As a smart solution for your company and your key employees, this plan is designed to help top talent save beyond 401(k) plan limitations for retirement and other savings goals; while concurrently helping your business recruit, retain, and reward them.
How does it work?
A deferred comp plan is a type of savings vehicle you provide to the key employees you select. Participants in the program can defer a portion of their annual compensation or bonuses into the plan before taxes and you promise to pay that money (plus any earnings or additional contributions you may offer) to them at a future date.
What are the benefits and considerations of the Nonqualified Deferred Compensation Plan?
There are a number of benefits and considerations of the Nonqualified Deferred Compensation Plan for both employers and employees. Here are just a few.
For your company
- Employee morale: Offering this benefit will help your employees feel valued, resulting in more loyal and motivated employees.
- Incentives: As the employer, you can offer additional incentives to key employees to help with positive rewards or retention.
- Tax deductions: Money that accumulates to finance the plan remains an asset on your balance sheet until benefits are paid, and you receive a tax deduction.*
- Service fees/charges: There could be a charge to earnings on assets purchases to finance the plan, based on fees for plan administrative services.
For your key employees
- Flexibility: Employees decide how much to defer the year prior to earning the income, then can enjoy the flexibility to choose how and when benefits are paid.
- Limited protection: This plan is unfunded and doesn’t provide the same protection as a 401(k) plan.
- Savings: Employees can take advantage of pre-tax deferrals (up to 100%), tax-deferred growth, and compounded earnings.**
The Nonqualified Deferred Compensation Plan is a smart way to retain your best employees. By using a deferred comp plan, your company will be more likely to find and hire the right employees that will work hard for your business for years to come.
Have questions? We can help. Contact get-benefits today to learn more.
* For taxable corporations
** Contributions to the plan are subject to FICA when benefits vest. Plan participant deferrals may not be deductible in all states. Distributions are taxable to participants upon receipt.