When you’re choosing a corporate retirement plan, you have four main options. There are qualified and nonqualified plans, as well as defined-contribution and defined-benefit plans.
The nonqualified plan may be less popular with some corporate employees because it doesn’t always offer as many tax incentives to everyone as the qualified type. Also, employees must pay taxes each year on their employers’ contributions to their plans. Finally, these plans often fail to meet ERISA (Employee Retirement Security Act) guidelines – as well as certain IRS and DOL (Department of Labor) requirements.
However, there are corporate employers and workers who still value nonqualified plans for the reasons set forth below. These perceived advantages are followed by a list of the “four major types” of such plans.
Positive Aspects Some See in Nonqualified Corporate Pension/Retirement Plans
They allow corporations to exceed the contribution limits that are normally made to such plans;
Contributions to these plans often favor some employees more than others – to the extent they would not be allowed under a qualified retirement plan;
They take less time to set up than qualified plans;
They allow individual corporations the freedom to create most of the rules that will govern their plans.
Naturally, those who earn less in these types of corporations usually aren’t very pleased with the different levels of contributions. Furthermore, they can rarely get them changed since they benefit the wealthiest people who are in charge. The highest-paid executives also like the fact that the company may offer to pay or “cover” the taxes due on the annual contributions so as to make this type of plan even more appealing to the privileged leaders.
Here is some additional information about the four main types of these nonqualified plans.
Names of the Four Main Types of Nonqualified Retirement Programs/Plans
Deferred compensation plans – these often provide that some of the earned income will not be taxed until a later time;
Executive bonus plans – these self-explanatory types of plans are not always drawn up with outside guidelines in mind;
Group “carve-out” plans – these are often made available to highly paid executives. A “group carve-out plan replaces the current group life insurance amount over $50,000 on the people the company wishes to carve out;”
- "Split-dollar life insurance plans” basically make it cheaper for some employees to purchase life insurance.
To obtain help with handling all of your Georgia business planning needs, please contact Shane Smith Law today. You can schedule your free initial consultation with a knowledgeable Peachtree City estate planning attorney by calling: (770) 487-8999.