Non-Qualified Deferred Compensation Programs (NQDC)
Chapters in this video
- 0:00 The boss's mattress: NQDC as general assets
- 2:37 Deferral election timing and the six payout triggers
- 3:27 The 20% penalty for changing distribution timing
- 4:13 Rabbi trusts and why creditors still win in bankruptcy
- 5:27 NQDC vs qualified plans and the employer deduction trap
- 6:52 Rapid-fire exam recap
What this video covers
- Why NQDC assets remain part of the employer's general assets, making the executive an unsecured creditor if the company goes bankrupt
- The headline NQDC superpowers: no contribution limits, selective offering (discrimination allowed), and no Internal Revenue Service (IRS) approval required
- The strict deferral-election chronology: the election must be made before the year the compensation is earned, not after
- The six permitted distribution triggers: separation from service, disability, death, change in control, unforeseeable emergency, or a fixed date/schedule
- The penalty for violating NQDC timing rules: immediate taxation plus interest plus a 20% additional tax
- Why a rabbi trust protects the executive from the employer changing its mind, but does NOT protect assets from the employer's creditors in bankruptcy
- The employer tax-deduction timing difference: qualified plans deduct at contribution, NQDC plans deduct only when the employee receives the distribution
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