Reward and retain the people who drive your business, and go beyond IRS retirement plan limits, with benefits you offer only to the people you choose.
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A non-qualified retirement plan is a retirement or compensation benefit that sits outside the IRS rules for 401(k) and pension plans. Because it isn’t “qualified,” it doesn’t have to cover every eligible employee and isn’t subject to the same contribution limits. You decide who gets it, how much, and on what terms.
Businesses use non-qualified plans, often called executive benefits, to reward and retain key employees, to create “golden handcuffs” for the people they can’t afford to lose, and to give owners and executives a way to save beyond what qualified plans allow.
Key employees defer part of their salary or bonus to a future date, such as retirement. They aren’t taxed on the deferred amount until it’s paid out, and the business takes its deduction at that time. Plans must follow the rules in IRS Section 409A.
The business promises a key person an additional retirement benefit on top of the qualified plan, often with a vesting schedule that rewards them for staying.
The business pays a deductible bonus that the employee uses to pay premiums on a life insurance policy they own. It’s simple to set up and administer. A restricted executive bonus arrangement (REBA) adds vesting conditions so the benefit also works as a retention tool.
The business and the executive share the cost and benefits of a permanent life insurance policy, which can provide both death benefit protection and supplemental retirement value.
| Qualified plans (401(k), cash balance) | Non-qualified plans | |
|---|---|---|
| Who is covered | Most eligible employees | Only the people you choose |
| Contribution limits | IRS annual limits apply | No IRS contribution limits |
| Nondiscrimination testing | Required | Not required (for a select group of key employees) |
| Employer tax deduction | When the contribution is made | Usually when the benefit is paid or taxed to the employee |
| Asset protection | Held in a trust, protected from company creditors | Generally a company asset, subject to company creditors |
Qualified and non-qualified plans aren’t either/or. The strongest designs use both.
At Life, Inc. Retirement Services, we design benefits as a Retirement Plan Stack. Executive benefits are Layer 4, built on top of the qualified plans:
Because we also design and administer your qualified plans, all four layers work together instead of in separate silos.
From first call to final paperwork, we handle the design, the math, and the administration.
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We look at your entity type, key people, current plans, and goals to see what fits.
We choose the right structure, who it covers, vesting, and how it’s funded.
You get a clear illustration of the cost, the tax timing, and the value to each participant before you commit.
Plan documents, required filings, and ongoing administration, coordinated with your qualified plans.
A note for S corporation and LLC owners: because business income passes through to your personal return, deferred compensation usually doesn’t reduce an owner’s own taxes the way it does in a C corporation. Executive benefits can still be very effective for your key employees, and insurance-based strategies may work for owners. We’ll tell you which approach fits your entity.
We design, document, and administer these plans so they work the way they’re supposed to.
Learn more: About Us | Cash Balance Plans | Group Retirement Plans | FAQ
It is a retirement or compensation benefit that doesn’t follow the IRS rules for qualified plans like a 401(k). That means the business can offer it to only select employees, with no IRS contribution limits, in exchange for different tax timing and less asset protection.
A 401(k) must cover most eligible employees, has annual IRS limits, and holds assets in a protected trust. A non-qualified plan covers only the people you choose, has no IRS contribution limits, and its assets generally remain with the company until benefits are paid.
Yes. That’s the main advantage. Deferred compensation plans are generally limited to a select group of management or highly compensated employees, and you can choose different benefits for different people.
It depends on the type of plan. With deferred compensation, the business usually deducts the benefit when it is paid and taxable to the employee. With a Section 162 executive bonus plan, the bonus is generally deductible when paid.
In most deferred compensation plans, the money stays a general asset of the company, so participants could be treated like other unsecured creditors. That’s why plan design and funding strategy matter.
Usually not for deferring the owner’s own income, because pass-through income is taxed to owners either way. It can still be a powerful tool for your key employees, and insurance-based strategies may help owners. We’ll review your entity type with you.
Many businesses informally fund their future obligations with company-owned life insurance or a dedicated investment account. Others use executive bonus or split-dollar arrangements, which are built around life insurance from the start.
Life, Inc. Retirement Services does not offer tax advice. Please always consult your tax professional about your eligibility for tax credits.
Life, Inc. Retirement Services is a Registered Investment Advisory Firm of the state of Ohio and licensed in Florida and Maryland. All emails and communication are meant to be informative and educational and should not be considered a sale of security until proper notification and disclosures are given.