Deferred compensation plans can assist companies recruit and hold key talent—and that’s a huge deal for those that want to advance and survive.
Deferred compensation lets the most critical employees store away extra retirement cash than they’re allowed to with rank-and-file retirement plans. Like 401(k)’s and related plans, deferred repayment funds are shielded from income tax. The money can grow tax-unfastened until it’s cashed out at retirement—and by way of then, recipients are probably to be in decrease tax brackets. No surprise deferred compensation is attractive to executives!
Listed below are 3 common deferred-compensation preparations:
- Deferred Financial Savings Plans. These plans basically work as supplemental 401(k)’s. Employees fund them through deductions from their paychecks, and they can include their bonuses as well. Employers comply to provide a hard and fast return on the contributions, or to make investments selected through the employee.
- Supplemental Executive Retirement Plans (SERPS). Employees fund deferred savings plans from their own income, SERPs are funded completely by employers. How do corporations calculate the amount of gain to be socked away for the worker? One way is to select a set quantity – $50,000, say and observe it each year, for an agreed-upon range of years. Another is to take a percent of an employee’s earnings just previous to retirement, then multiply that by the number of years he or she has spent with the company.
- Restricted Bonus Plans. Below this arrangement, the important thing employee takes out what is referred to as a cash-value life insurance policy. The agency can pay the life insurance rates. The employee is entitled to a payout from the policy, but only after he or she has been with the company for a certain number of years.
Be Reminded that legally, deferred compensation is available only to highly paid employees and senior management. Another risk factored in is that the employee might leave to join a competing company.