Nonqualified 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 nonqualified 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.
Traditional IRAs

Related Articles
  1. Managing Wealth

    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.
  2. Retirement

    How We Can Help Close the Retirement Savings Gap

    The majority of Americans are not very confident about having enough for retirement.
  3. Retirement

    The Basics of a 401(k) Retirement Plan

    This plan has become one of the most popular retirement options. Here's why.
  4. Small Business

    Plans The Small-Business Owner Can Establish

    Don't hesitate to adopt a smart plan for you and your employees.
  5. 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.
  6. Retirement

    Is a SIMPLE IRA Right for Your Small Business?

    Here's how small businesses can benefit from offering a SIMPLE IRA to their employees.
  7. Retirement

    Is Your 401(k) Administrator Competent?

    The more that employees know about their employee 401(k) plans, the better. But what doesn't your administrator know?
  8. Financial Advisor

    The 4-1-1 on 403(b) Plans

    These plans resemble 401(k) plans in many respects, but are specially designed for nonprofit entities.
  9. Managing Wealth

    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.
Frequently Asked Questions
  1. What is the difference between secured and unsecured debts?

    The differences between secured and unsecured debt, and how banks buffer risks associated with each type of loan through ...
  2. How Many Times has Warren Buffett Been Married?

    Warren Buffett has been married twice in his life, but the circumstances surrounding the marriages were unconventional.
  3. What's the smallest number of shares of stock that I can buy?

    Many people would say the smallest number of shares an investor can purchase is one, but the real answer is not as straightforward. ...
  4. What is an economic moat?

    An economic moat refers to a company's ability to maintain competitive advantages to protect its long-term profits and market ...
Trading Center