"Gene E. Utterback, EA" <Gene[at]AllianceTax.Com> wrote:

- quote -

I agree with you in general, especially considering all the
large companies that have filed for bankruptcy in recent
years. However, there is another motivation for these plans
that does not involve propping up a weak company.

I worked for a very large and successful corporation before
I retired and struck out on my own in late 1999. In the
1990's they offered non-qualified salary deferment plans to
their executives on three separate occasions. I was able to
participate in the first two, though I was at the bottom of
a very long food chain. I believe the reason these plans
were offered were to benefit those at the top of the chain
that had control over establishing plans such as these and
would also benefit the most. The plans also had a vesting
period (five years I believe) for the interest earned that
was designed to encourage executives to not leave the
company too early.

I understood at the time that money put into these plans was
not protected in any way. I guess I might have invested if I
had worked for Enron and had faith in the company, but this
company was not Enron and is still healthy today. I have
received 5 of my 20 yearly payouts and expect the company to
remain healthy beyond the next 15 years, but in today's
environment you never know. BTW- the payouts unfortunately
started the year after I left the company and could not be
deferred until I really needed them.

--
Vic Roberts
Replace xxx with vdr in e-mail address.

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"Eric" <spam1970[at]mac.com> wrote:

- quote -

Nonqualified plans are usually supplements to qualified
plans like 401(k)s however there are some significant
differences that you need to be aware of. It seems from your
post that you are talking about a company sponsored
nonqualified plan and not an annuity, so my comments will
focus thusly.

First - nonqualified plans are nonqualified. Here
qualification refers to ERISA. A qualified plan like a
401(k) has to follow the ERISA rules. Among these rules is
the one that requires the employer to segregate your
retirement money from the operating money. In these types
of nonqualified plans the company does NOT set your money
aside, instead they can use it to pay for their business
expenses or any way they see fit.

Second - nonqualified plans are not guaranteed in any way.
This is sort of related to item one, but let's expand. All
you get in return for a contribution to a nonqualified plan
is the company's "promise" that they money will be there
when you go looking for it. There is no guarantee that they
will have the cash to give you when you ask for it.

Many will observe that there is no guarantee that your
401(k) money will be when you go after it either, but there
is a significant difference. In a 401(k) you could park all
of your money in a money market account. While it wouldn't
gain anything in value, the original contribution would be
there when you go to get it. In a nonqualified plan they
money may or may not be there - again, there is no legal
requirement that the company set your money aside NOW for
you to get to later.

Sometimes a company sponsored plan will be referred to as a
Rabbi Trust - because the first such plan was set up for a
Rabbi (in NY I think).

These plans allow you to defer lots more money now. They
also let companies discriminate about who gets to
participate, so they can offer it to highly compensated
employees and can exclude others if they like. They are
attractive to employees because you can defer a lot of money
- some plans allow you to defer 35% of your compensation
with NO CAP. So if you make $200K a year you could put $70K
into this plan - on top of what you put in the 401(k).

For the company, this gives them some extra cash to work
with - essentially they are using employees' money to fund
operations.

I'd be very careful about these plans. In my experience,
when a company offers these plans it may be to fund cash
flow problems as much as to let employees defer
compensation.

I would advise you to seek out a local professional who is
knowledgeable in retirement plans - either a good EA, CPA,
RFC or CFP - and pay them to review the plan and give you an
opinion. Frankly, the vast majority of the time - I advise
against them.

Good luck,
Gene E. Utterback, EA, RFC

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Can anyone recommend books or other publications about how
to use non-qualified deferred compensation plans? The plan
in question allows participants to choose the year of
distribution. Do I treat this as just a supplement to a
401(k) and set the distribution year for my expected
retirement date? Do I use it to as a complement to a 529
plan for my child's educatioin and set distribution for the
start of school? Or do I use it with a shorter time frame
as a way of maximizing itemized deductions by clustering
them in alternate years?

Thanks

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >