Nonqualified Plans • Overview • ERISA Requirements • Advantages & Disadvantages • Business Needs
Overview of Nonqualified Plans
Nonqualified plans have grown in popularity largely because qualified plans are subject to complex nondiscrimination rules that prevent employers from providing disproportionately greater benefits to highly compensated employees. Nonqualified plans allow employers to selectively provide additional benefits to key executives without the restrictions that govern qualified plans under ERISA.
The principal advantages of nonqualified plans include the ability to tailor a plan to an individual executive’s needs, the ability to favor one key employee over others, and the potential for employer cost recovery. The principal disadvantage is that employer contributions to a nonqualified plan are generally not tax-deductible until the employee actually receives and recognizes the income.