Deferred Compensation Definition
A portion of employee income that is deferred until retirement is known as deferred compensation. Employers can offer employees qualified and non-qualified deferred compensation plans.
Employers may offer employees a deferred compensation plan where income is paid out a later date than when it was actually earned. The plan allows employees to voluntarily lower their taxable wages by investing a certain percentage of their gross pay in the plan, through payroll deductions. Employees can opt for qualified or non-qualified deferred compensation plans. Qualified plans include retirement plans and pensions that come with tax deferral benefits. Non-qualified plans can be in the form of salary reduction agreements, excess benefit plans, and bonus deferral plans. Compensation deferral does not reduce pension, retirement or other legally applicable benefits, unless federal law requires such a deduction.
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