Non-Qualified Deferred Compensation Plan
Definition
A non-qualified deferred compensation plan, also known as NQDC, is an agreement between two entities (usually employee and employer) to provide compensation at a later date. Qualified deferred compensation plans offer tax benefits, while non-qualified plans do not.
Expanded Definition
Deferred compensation is a way to pay someone in the future for services earned in the present. The Internal Revenue Service (IRS) has established regulations on how to classify different types of deferred compensation. When the requirements are met, the deferred compensation is referred to as qualified. Non-qualified deferred compensation is the term used when the established rules are not satisfied. Non-qualified plans do not provide the income tax benefits of qualified plans, but do offer other perks including flexibility in who qualifies for the plan.
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