Navigating the complexities of deferred compensation plans
Perhaps the least understood type of employer-sponsored plan (and the most varied in design) is the nonqualified deferred compensation plan. Deferred compensation plans allow participants to defer components of compensation until a later date. Many plans allow participants to elect the date or age and the manner of compensation distribution. It’s important to have a complete understanding of the plan’s structure and how to integrate it with other plans and your total compensation.
Is this relevant to my clients?
Individuals who are maximizing other benefits and are receiving significant total compensation would benefit by using a deferred compensation plan due to:
- Ability to manage cash flow now and in the future
- Liquidity needs such as a home purchase, a tuition obligation or a retirement goal
- Ability to manage tax friction associated with all other types of compensation
- Ability to provide a stream of income to bridge any gaps or to defer drawing on Social Security benefits and other retirement savings