Retirement and College Savings Plans - Non-Qualified Employer-Sponsored Retirement Plans


Non-qualified employer-sponsored retirement plans are not required to meet specific IRS guidelines regarding contribution limits, vesting and employee coverage. Moreover, any contributions to these types of retirement plans do not grow tax-deferred.

Let's look at two types of non-qualified employer-sponsored retirement plans: deferred-compensation plans and payroll deduction plans.

  • Deferred-Compensation Plans: Deferred-compensation plans should not be confused with defined-contribution plans, nor with 457 governmental plans (also referred to as deferred compensation). They are simply contracts between employers and certain employees in which the employer agrees to pay a certain amount of compensation to the employee at a later date, usually at retirement or termination, and/or upon disability or death.

    A deferred-compensation plan can be either funded or unfunded. Funded plans are backed by specific employer assets that are not accessible to creditors, while unfunded plans are backed only by the promise of the employer.

  • Payroll Deduction Plans: Payroll deduction plans are simply product-purchase services set up by the employer to provide cheaper life insurance, mutual funds, variable annuities and other benefits to employees. Employees usually purchase these special products and services with after-tax deductions from their paychecks. Some employers may also decide to match a certain percentage of the employee's contribution, although they are not required to do so.
Individual Retirement Accounts (IRAs)


Related Articles
  1. Retirement

    How Does a Pension Plan Work?

    A pension plan is a savings plan maintained by an employer on behalf of its employees for their retirement.
  2. Saving and Spending

    Deferred Compensation Plans for Nonprofits

    Learn about the two types of deferred compensation plans that nonprofit companies can use to allow high-ranking employees to increase their retirement savings.
  3. Entrepreneurship

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  4. Retirement

    Retirement Savings for Small-Business Employees

    President Obama’s new budget gives high priority to improving retirement plans, especially for employees of small companies.
  5. Investing News

    SEP vs. Keogh Plans: Which is Right for You?

    SEP and Keogh plans each have their pros and cons. Here's how to choose which one is right for you.
  6. Term

    What's a Qualified Retirement Plan?

    Employers establish qualified retirement plans to help their employees save money.
  7. Personal Finance

    Life Insurance Plans to Help Your Small Business Retain Employees

    How to use and design cash value life insurance plans as an incentive to help attract and retain key employees.
  8. Retirement

    This Is Why Your Employer Should Offer a 401(k)

    Understand the unique benefits that come with a small business offering a retirement savings plan such as a 401(k) to current and future employees.
  9. Retirement

    What's a Defined Contribution Plan?

    A defined contribution plan is a company retirement plan that specifies the amount of money contributed to it.
  10. Retirement

    Which Retirement Funds Are Protected from Creditors?

    While many employer-sponsored retirement accounts – including most 401(k)s – are protected against creditors, that’s not always the case.
RELATED TERMS
  1. Non-Qualified Plan

    Any type of tax-deferred, employer-sponsored retirement plan ...
  2. Employer-Sponsored Plan

    A type of benefit plan that an employer offers for the benefit ...
  3. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  4. Top Hat Plan

    A form of retirement plan available only to selected company ...
  5. Auto Enrollment Plan

    An employer’s decision to sign employees up to have a percentage ...
  6. Corporate Pension Plan

    A formal arrangement between a company and its employees - or ...
RELATED FAQS
  1. Can you fund nonqualified deferred compensation plans with life insurance?

    Understand if a person can fund nonqualified deferred compensation plans with life insurance. Learn what types of plans are ... Read Answer >>
  2. What is the difference between qualified and non-qualified plans?

    Qualified and non-qualified retirement plans are created by employers with the intent of benefiting employees. The Employee ... Read Answer >>
  3. Mike is a highly compensated employee of XYZ Company, his company has offered him ...

    The correct answer is b): One of the most common types of nonqualified retirement plans is the deferred compensation plan. ... Read Answer >>
  4. What are qualified retirement plan types?

    Understand the different types of qualified retirement plans and what they mean in terms of employee and employer contribution ... Read Answer >>
  5. How does a defined benefit pension plan differ from a defined contribution plan?

    Learn the differences between defined benefit plans and defined contribution plans when reviewing employer-sponsored qualified ... Read Answer >>
  6. What is the best retirement plan option for a physician with her own practice, employees ...

    It is very unlikely that you will find a qualified plan or an IRA-based plan that will allow the employer to exclude other ... Read Answer >>
Hot Definitions
  1. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  2. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  3. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  4. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  5. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  6. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
Trading Center