Outten & Golden attorneys review and negotiate employment agreements, separation agreements, and compensation agreements that include deferred compensation arrangements. When an employer fails to comply with the terms of such an agreement or a compensation or benefit plan, our attorneys negotiate, litigate, and arbitrate the disputes.
Deferred compensation is income that is earned in one year but paid out in a later year. Deferred compensation plans are arrangements in which a portion of an employee's earned income is withheld and paid out at a specified later date, perhaps subject to vesting and delivery requirements. These plans provide employees with future income as well as a tax deferral, given that income typically is not taxed until the date it vests or is received. In addition, the deferred income may accrue interest or dividends before it is taxed.
Qualified Deferred Compensation Plans
Deferred compensation plans fall into two categories: qualified plans and non-qualified plans. Qualified plans are regulated by ERISA (the Employment Retirement Income and Security Act). Non-qualified plans are outside the scope of ERISA but may be regulated by Internal Revenue Code section 409A.
Qualified plans, like defined benefit plans, 401(k)s, and IRAs, generally set aside money to be paid to employees in retirement. Absent special circumstances, employees cannot access qualified deferred compensation before retirement age without incurring a substantial penalty.
Non-qualified Deferred Compensation Plans
Non-qualified deferred compensation plans usually are offered only to a select group of high-level employees who may receive the deferred funds before retirement. These plans are not limited in the amount or type of compensation that can be deferred. They include executive bonus and incentive plans, severance plans, and split-dollar life insurance plans, and they may involve investment of the deferred amount by the employer on the employee’s behalf. Deferred compensation plans provide an incentive for an employee to remain employed by the company, because the employee may forfeit unvested deferred compensation by leaving the job before vesting.
If you are negotiating an employment contract with deferred compensation arrangements, contact our firm through the ”Contact Us" form or by calling us in the New York, Chicago, San Francisco, or Washington, DC office (see footer for phone numbers) to begin the Outten & Golden intake process.