TITLE

Potential Funding Problems With Deferred Comp Plans

AUTHOR(S)
Katt, Peter C.
PUB. DATE
August 1997
SOURCE
Journal of Financial Planning;Aug1997, Vol. 10 Issue 4, p32
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
This article discusses the potential funding problems with deferred compensation plans. Nonqualified salary protection plans (SPP), also commonly known as deferred compensation plans, are used by employers to reward key employees and encourage their continued employment. Life insurance is almost always recommended to fund such plans because the policy cash values grow tax-deferred and the death benefits provide immediate funding in the event of a plan participant's premature death. The commitment to provide SPP benefits far into the future is not generally in the best interest of employers for two reasons. Such a long time-horizon does not seem to motivate the plan's participants. Secondly, those once deemed key employees may become much less important, while newer employees whom the employer would like to motivate may not become part of such a plan because the funds available already are being used for the original plan participants. Potential SPP underfunding can be avoided by defining the contributions instead of the benefits. Under a defined-contribution SPP, new projections should be done periodically to inform the SPP participants what they might expect at current interest rates so their expectations can be properly managed.
ACCESSION #
9708310911

 

Related Articles

  • 2011 NQDC Buyer's Guide.  // Plan Sponsor;Dec2011, p8 

    The article introduces the 2011 Nonqualified Deferred Compensation Plan Buyer's Guide, which provides an overview of online services to participants including daily investment changes, beneficiary changes, and automatic account rebalancing.

  • The Making of an Election. McNeil, Bruce J. // Benefits Magazine;Dec2015, Vol. 52 Issue 12, p53 

    The article advises to consider tax consequences when making elections to defer compensation of nonqualified retirement plans which is based on the doctrine of constructive receipt of Internal Revenue Code Section 451.

  • Funding Nonqualified Deferred-Compensation Plans. Okumura, Kirk // Advisor Today;Sep2004, Vol. 99 Issue 9, p28 

    Describes funding options for nonqualified deferred-compensation plans that employers could set up for themselves and for executives. Impact of pure self-funding on corporate cash flow; Self-funding with asset allocations; Use of permanent life insurance; Recovery of the after-tax cost of all of...

  • Beyond stock-related compensation for directors. Baldwin, Sterling; Wilson, Leonard I. // Corporate Board;Nov/Dec98, Vol. 19 Issue 113, p15 

    Focuses on compensation of corporate directors for their services with company stock rather than cash to align interests of management and owners. Stock-related compensation for directors as one of the most popular payment vehicles in corporate America; Use of deferred compensation plans;...

  • Analyzing the Financing of Nonqualified Deferred Compensation Plans. Carrick, Gregory J. // Benefits Quarterly;1998 Third Quarter, Vol. 14 Issue 3, p43 

    This article creates a framework within which to evaluate the financial impact of a nonqualified deferred compensation plan on the employer, specifically targeting establishment of the process used to create such an evaluation. An illustrative case study is included to facilitate the...

  • Is Permanent Individual Life Insurance Passé? Friedman, Douglas I. // National Underwriter / Life & Health Financial Services;9/24/2007, Vol. 111 Issue 35, p14 

    The article explores the advantages of a permanent individual life insurance in the U.S. In cases where client needs are more complex, permanent insurance is the best choice. It is preferred for long term needs such as estate liquidity. In addition, permanent insurance is still favored for...

  • Nonqualified Deferred Compensation Plans Under New Code Sec. 409A. Kennard, Alan L. // Corporate Business Taxation Monthly;Mar2005, Vol. 6 Issue 6, p15 

    Discusses nonqualified deferred compensation plans under the new Code Section 409A. Law that requires compensation pursuant to a nonqualified deferred compensation arrangement that was previously permitted to be deferred to be currently taxable to the taxpayer if there is not a substantial risk...

  • Analyzing Deferred Compensation Arrangements Under the Section 409A Final Regulations: A Six-Step Analytic Process. Reifler, Stewart // Corporate Business Taxation Monthly;Aug2007, Vol. 8 Issue 11, p11 

    The article presents the second part of three about the process of nonqualified deferred compensation arrangement plans (NQDCP) under the Section 409A Final Regulations in the U.S. Several types of tax-qualified retirement plans exempted from NQDCP definition are discussed. Key information about...

  • Learn to Speak Fluent Nonqualified Deferred Compensation: A Guide to Understanding the Language Spoken in the World of Nonqualified Plans. MacDonald, William L // Journal of Retirement Planning;Jul/Aug2007, Vol. 10 Issue 4, p37 

    The article explains the fundamentals of nonqualified deferred compensation plans and why they appear more complicated than is necessary. Companies began to offer savings plans considered nonqualified to address the inequity created by the Employee Retirement Income Security Act of 1974 (ERISA)....

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics