Offering your key employees an incentive to stay and work hard for your company can be challenging. These employees could theoretically provide years of value to your organization, so it’s critical they stay loyal.

A Nonqualified Incentive Bonus Plan offers an ideal way to add a competitive advantage in your organization and an incentive for your employees. This form of deferred compensation plan is a tax deferred bonus program that provides additional compensation beyond 401(k) limits to only the employees you choose. What’s more is you can set the vesting schedules that make sense for your business.

Employees can also benefit by using a nonqualified plan. Unlike most long-term incentive plans, the Nonqualified Incentive Bonus Plan allows them to design an investment strategy and includes online account access, vesting, and transaction information.

How does it work?

 The Nonqualified Incentive Bonus Plan works by your company making pre-tax contributions into the plan for your key employee, then promise to pay that money (plus earnings) to them at a future date based on vesting schedules you set.

Whether by using corporate-owned life insurance, taxable investments, or the organization’s cash flow, informally financing your plan is up to you.

What are the benefits and considerations of the Nonqualified Incentive Bonus Plan?

For your company

  • Morale: Employees appreciate this benefit, which will improve overall loyalty and morale
  • Retention: Employees will be motivated and more likely to stay at the company through the use of a deferred comp plan
  • Tax deduction: Any money that accumulates to finance the plan will remain an asset on the balance sheet until benefits are paid (and your company receives a tax deduction)

For your key employees

  • Ability to choose: Decide when benefits are paid, as allowed by the plan*
  • Design your plan: Tailor your plan with a variety of investment options
  • Limited protection: The plan is unfunded and doesn’t offer the same protection as a 401(k) plan

* Distributions must be paid within 10 years of the original date of each company grant.

The Nonqualified Incentive Bonus Plan is another way to incentivize your employees to stay loyal and motivated within your company.

Have questions? We can help. Contact get-benefits today to learn more.