| Term | Definition |
|---|
| Doctrine of Constructive Receipt | income is considered constructively received if it is made available to the employee even if he or she could of taken it but chose not to. |
| Substantial Risk of Forfeiture | income is considered constructively received if it is subject to this. |
| Substantial Risk of Forfeiture | from the IRS's standpoint, this involves being required to work for the company for a number of years before receiving the money, having the employer retain the right to cancel the agreement of the executive fails to met his or her obligations under the agreement or meeting performance conditions, the fact that the company and/or its creditors CAN get to the monies or property contributed. |
| Qualified Benefit Plan | these plans cannot discriminate in favor of highly compensated employees as defined by IRC Section 414(q). |
| Non-Qualified Benefit Plan | these plans discriminate in favor of highly compensated individuals as determined under IRC Section 414(q) and the |
| Employee Retirement Income Security Act | What does ERISA stand for? |
| Nonqualified Deferred Compensation Plans | examples are: Excess benefit plans, salary reduction plans, supplemental deferred income plans, supplemental employee retirement plan (SERP), or Top-Hat plans. |
| Excess Benefit Plan | a type of nonqualified deferred compensation plan; this plan is an obligation that is only provided by the employer and essentially picks up where a qualified retirement plan left off. They are specifically designed to make up the difference between the $180,000 defined benefit maximum amount that can be provided by an employer under IRC Section 415(b) in 2007. |
| Salary Reduction Plan | a type of nonqualified deferred compensation plan; this plan is funded by the employee, not the employer; to avoid Doctrine of Constructive Receipt rule, this must be elected before compensation is actually received; under this plan, a specified portion of an executive's compensation is deferred by reducing the amount of compensation normally paid to that employee each pay period. These plans may also receive contributions through the deferral of an employees' raises or bonuses as long as the choice is made before the employee is eligible to receive these raises or bonuses. |
| Supplemental Deferred Income Plan | a type of nonqualified deferred compensation plan;this plan is an obligation provided by the employer. There must be a written agreement between the employer and employee that specifies that a supplemental amount of income will be paid to the employee in the future upon the successful completion of the terms of the agreement. |
| Supplemental Employee Retirement Plan (SERP) | a type of nonqualified deferred compensation plan; this plan is an obligation provided by the employer. It is somewhat like an Excess Benefit Plan in that it provides additional retirement income for highly paid executives. The difference between these two is that this is designed to provide the highly paid executive with retirement income on a different basis than that used for other employees. |
| Top Hat Plan | a type of nonqualified deferred compensation plan; this plan is an obligation provided by the employer; what makes this plan different than a SERP is that these plans may cover a "select group" of employees rather than an individual employee. |
| Funded Non-Qualified Deferred Compensation Plans | a nonqualified deferred compensation plan is considered this when the employer segregates the money or assets in an escrow account or trust fund as security for its promise to make future payments to the executive. The executive has a beneficial interest in this money or assets and only the executive can receive them. For tax purposes, the employer deducts these contributions as compensation at the time they are made. However, the executive must also recognize these employer contributions as OI at the time they are made. |
| Unfunded Non-Qualified Deferred Compensation Plans | a nonqualified deferred compensation plan is considered this when any money or assets that are set aside are also available for use by the company or its general creditors if the company becomes insolvent. The employer cannot take a deduction for any funds or assets contributed as compensation until the employee reports the income for tax purposes. The employee does not have to report these monies as OI for tax purposes until they are actually received by him or her. |
| Pay-as-You-Go | type of funding method where the employer essentially assumes that there will be adequate cash flow when the time comes to make the payments. |
| Reserve Account | type of funding method where this account is maintained separately from the company's other assets but it is still a company asset that can be accessed for any purpose. |
| Reserve Account/Employee Investment Direction | type of funding method where this account is exactly the same as the Reserve Account except that the executive has the ability to direct the investments in this account. |
| Corporate-Owned Life Insurance (COLI) | most nonqualified deferred compensation plans state that if the executive dies before receiving the promised benefits, all or part of those benefits will be paid to his or her beneficiaries. Permanent insurance is often used as the funding vehicle. The earnings in the cash-accumulation account are tax deferred for the employer. |
| Secular Trust | once money is placed in this trust, it cannot be used for any other purpose other than providing the promised benefits to the executive. Assets in this trust are not available to the business or its creditors under any circumstances. Because of this structure, the business can deduct these contributions as compensation and the executive is immediately taxed on the contributions. |
| Rabbi Trust | the company may not use these assets for any other purpose other than to pay creditors and this is generally only in case of insolvency. Because of this Substantial Risk of Forfeiture, contributions to this trust are not immediately recognized as OI by the executive. |
| Guaranteed Payment | this is a form of insurance against the employer not being able to make the payments. The employee purchases a contract from a third party that ensures he or she will receive the payments if the employer defaults on the agreement. |
Combine with other sets
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