Question of the Week

Mike is a highly compensated employee of XYZ Company, his company has offered him a nonqualified retirement plan as an added incentive for better performance. The plan is exempt from ERISA participation requirements and only offered to top executives. Which of the following plans was most likely offered to Mike?

a) Defined Benefit Pension Plan
b) Deferred Compensation Plan
c) Profit-Sharing Plan
d) 401(k) Plan


The correct answer is b):

One of the most common types of nonqualified retirement plans is the deferred compensation plan. For many years, corporations have used nonqualified deferred compensation plans for their highly compensated employees. They allow the employee to defer their pay until a later date, usually after retirement to take advantage of lower tax brackets. No reporting or disclosure information is required and the agreement is based on the full faith and credit of the corporation. All of the other answer choices are examples of qualified plans.