Deferred compensation | Meaning and Definition

What is deferred compensation? 

Deferred Compensation refers to a plan of compensation that permits the employees in the organization to defer the compensation of the one tax year to a further or future tax year. The employers can defer certain parameters for the future tax years including bonuses earned, and some part of the payments that have to be paid to the employer. 

Types of deferred compensation plans:

There are two types of plans for deferred compensation, namely, qualified and non-qualified. The non-qualified deferred compensation plans are the ones that are also termed NQDC plans and are in Section 409A. 

This deferred compensation is not required for all the employers in the organization. This plan is important and required only for those who are the important employees in the organization or the employees who are among the highest-earning employees.

The plans that are part of Section 409A are excess benefit plans, Supplemental Executive Retirement Plans, Salary Reduction Arrangements, and Bonus Deferral Plans. The compensation plans that are included in the qualified deferred compensations plans are about 401K. The qualified plans are for those who are part of the company and also have some contributional limits.