A non-qualified deferred compensation plan is a contractual arrangement between your business and your key employees through which a portion of each eligible employee’s current and future salary is deferred until a later date.

Farm Bureau Financial Services can help determine if deferred compensation may be a good fit with your business goals and objectives. To find out if a non-qualified deferred compensation right for you, find a Farm Bureau agent today.  Non-qualified deferred compensation plans have these advantages:

You and eligible employees may participate

You receive a tax deduction when benefits are distributed

Offers employees a tax-deferred savings vehicle

Valuable employee benefit to help you recruit and retain quality employees

Generally no limits on contributions or distribution

Allows you to offer the plan to only selected key employees

You maintain control of funds until distribution

It supplements employee compensation packages by providing future income, without increasing salaries

Resources are available for the employee’s family in the event of death or disability

Non-Qualified Deferred Compensation Eligibility
Generally this plan may be established by any employer with one or more employees at any time during the year (governmental and tax-exempt organizations are eligible for Section 457 deferred compensation plans). You, as the employer, set up eligibility requirements to determine which of your employees may participate ― a select group or even an individual ― without the requirement that all employees be entitled to participate. Employees must elect to defer income before the income is earned.¹

Non-Qualified Deferred Compensation Guidelines
You and your key employee(s) must create a formal agreement to describe provisions and conditions of the payment of the deferred compensation benefits,² including the amount of benefits to be paid to the employee, how long the benefits will continue, and when the benefits will begin.

Employees may receive scheduled benefits from a non-qualified deferred compensation plan upon the occurrence of certain events,³ such as separation from service,⁴ death or disability, an unforeseen emergency, change in ownership or control of the employer, or a fixed time set out in the formal agreement.

Funds may be distributed as either a fixed sum or as an amount based on years of service and level of compensation, and are taxed as ordinary income in the year they are received. Since you maintain control of the deferred funds until distribution, they are not considered to be part of the employee’s current income and are not subject to taxation.

A non-qualified deferred compensation plan can be funded by a number of products ― a Farm Bureau agent can help you choose the best options for your plan. To learn how a non-qualified deferred compensation plan can meet your business goals and objectives, find an agent today.

¹ Generally, employees must elect to defer income before the end of the taxable year prior to the year in which the deferred income will be earned. In the first year of eligibility, an employee may make a deferral election 30 days prior to eligibility, but only for income to be earned after that date.
² If requirements applicable to this type of plan are not met, the income deferred may be considered as received, resulting in income taxes, a 20 percent penalty and interest being due.
³ If certain conditions are met, receipt of benefits may be delayed by the employee.
⁴ Key employees may be required to wait six months to receive benefits.