Nonqualified deferred compensation plans (NQDC) play an important role for companies looking to recruit, reward and retain executives. What are the latest trends for these types of plans? Find out during this timely, informative webinar from Newport and PLANSPONSOR magazine.
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Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") requires deferred compensation to be paid under written agreements specifying both the time when payments commence and the form of payment. Section 409A prohibits earlier payment under an "anti-acceleration" rule.
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Plan Sponsor and Advisor Webinar
April 6, 2020
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Employers that sponsor non-qualified deferred compensation plans may choose to set aside funds in order to create a pool of assets that can be used to pay benefits that have been promised to executives.
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Newport Group helped a large conglomerate see the “big picture” of its executive compensation structure and provided a vision for long term improvements.
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Non-qualified plans are an excellent tool to help retain, attract and reward executives or highly compensated employees. These plans can provide participants additional tax-deferred benefits above the levels available in their 401(k) plan.
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Internal Revenue Code Section 409A (“IRC 409A”) permits employees who first become eligible to participate in a non-qualified plan during the middle of the year to enroll within 30 days of initial eligibility. This rule may be beneficial to employees who are first hired in – or promoted to an eligible position during the middle of a tax year. However, care must be taken to ensure the rule is properly applied.
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Under Code Section 409A, an annual salary deferral election generally applies to all salary earned during the calendar year. If this concept were to apply to salary earned during the last payroll period of the year that crosses into the next year, human resources would need to identify the salary earned on or before December 31 and the salary earned after December 31, apply the appropriate deferral elections to each portion, (iii) communicate the two components of deferred compensation to the plan’s record keeper in order to assign the appropriate payment schedule to each portion and then (iv) communicate the combined deferral amount to payroll for processing.
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Are distributions from Non-Qualified Deferred Compensation Plans subject to state income "source" tax (i.e. can the state in which the income was earned impose its state income tax on the distributions from the plan, even though the recipient resides in a different state when reeicing the distribution)? The answer is "yes" unless the distribution meets one of two requirements.
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Public companies sponsoring non-qualified deferred compensation plans are subject to a special rule that requires payments to certain employees (called "specified employees" in IRC 409A) to be delayed for six-months following a seperation from service. This summary is intended to assist sponsors in developing administrative procedures for compliance with this special rule.
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