Using Nonqualified Deferred Compensation Plans to Attract and Retain Top Talent

Employers seeking effective ways to attract and retain executives and key employees may want to consider nonqualified deferred compensation (NQDC) plans. These plans can be powerful tools for long-term talent management and financial planning.

An NQDC plan is a legally enforceable agreement between an employer and an employee to defer a portion of the employee’s compensation until a future date — often after retirement. The key advantage for participants is tax deferral: they typically don’t pay income taxes on deferred amounts until they begin receiving distributions. Because most are retired by then, they’re often in a lower tax bracket, enhancing the value of the benefit.

For employers, NQDC plans provide flexibility in design and fewer compliance requirements than qualified plans such as 401(k)s. However, these arrangements must be carefully structured to clearly define both parties’ rights and obligations, and to comply with complex tax rules under Section 409A of the Internal Revenue Code.

If you’re considering adding or updating an NQDC plan, it’s vital to get the details right.

Contact us for help designing a plan that supports your organization’s strategic goals while protecting both your business and your employees.

About Bruce & Company, P.S.C.

Founded in 1976 by Gregory T. Bruce, Bruce & Company, P.S.C. is a full-service accounting firm proudly serving clients regionally, nationally, and globally, with our central office located in Madisonville, KY. For more than four decades, we’ve delivered trusted expertise in tax, financial planning, and auditing. Our knowledgeable team is dedicated to providing personalized service and practical solutions to help individuals and businesses achieve their financial goals. Contact us to learn more about how we can support you!