The Jacobs Company; Business Insurance

The Jacobs Company
Non-Qualified Deferred Compensation Plans

	Corporation	Key Employees
Agreement	Pays compensation for a set period after retirement or death.	Gives current Service. Agrees not to compete after retirement. Gives consultation as needed.
Benefits	Corporation retains key employess.	Provides extra retirement benefit when tax bracket may be lower.
Taxation	Deductible to corporation when payments are made.	Taxed when payments are recieved or "Constructively recieved."

How It Works

General Comments:

A. Deferral must be agreed upon before compensation is earned.

B. If the plan is "unfunded", the compensation is not taxable until recieved unless the amount is placed into a trust and the promise is secured.

C. If the plan is "funded", the employee's rights must be subject to substantial risk of forfeiture and they must be nontransferable. if they are not subject to such risk or are transferable, they become taxable.

D. Employer can pick and choose which employees to benefit.

E. A life insurance contract can be used to informally fund an agreement. It can provide the necessary funds at either death or retirement.

F. Nonqualified plans are not subject to the 15% excess accumulation penalty tax, the pre-age 59 1/2 distribution penalties, or the mandatory age 70 1/2 distributions imposed on qualified plans, IRA's, etc.

This document was last modified on July 15, 1999