Employers that sponsor a nonqualified plan can address the retirement readiness of these key employees by providing an additional way to save. Nonqualified plans also address other organization goals of employers, including the ability to recruit, retain and reward top talent.
Why Have a Non-Qualified Plan for your Employees?
By offering a non-qualified retirement plan, you are enabling your employees to make contributions on a pre-tax basis. They enjoy these benefits:
- Tax-deferred earnings
- No contribution limit
- No minimum withdrawal requirement at age 70½
Contributions to non-qualified plans are taxed when the income from them is recognized. Non-qualified plans can supplement the benefits already provided by your company’s qualified retirement plans.
These plans don’t have to meet ERISA standards of eligibility, participation, documentation and vesting. Non-qualified plans are a good way to offer added incentive for executives and highly compensated employees.
Employer contributions to qualified plans can be deducted immediately. Employees can also defer taxes on the salary contributed to a qualified plan. Interest, dividends or capital gains are taxed as ordinary income when the employee withdraws money from the plan.
Non-qualified plans, on the other hand, offer more flexibility and they can be restricted to a small group of select employees or even a single employee as part of your bonus plan.
Non-qualified plans don’t have the same restrictions on participation as qualified plans, so you can set up different benefit structures for different employees, regardless of compensation level.
Companies that meet these criteria can offer non-qualified plans to employees:
- Public, Private C Corporation, or non-governmental Tax-Exempt business entity
- Substantial business continuity
- Financial integrity
- Highly compensated employees (approximately $115,000 or more per year)
There is minimal reporting required for non-qualified retirement plans. You are only have to file a short form with the U.S. Department of Labor.