Non-qualified Deferred Compensation Plans

A non-qualified deferred compensation agreement is a contractual agreement in which an employee agrees to be paid in a future year for services rendered. Deferred compensation payments generally commence upon termination of employment (e.g., retirement) or preretirement death or disability, although inservice distributions are an option. Deferred compensation agreements are often geared toward anticipated retirement in order to provide cash payments to the retiree and to defer taxation to a year when the recipient is in a lower bracket. Although the employer's contractual obligation to pay the deferred compensation agreement benefit is typically unsecured, the obligation still constitutes a contractual promise.