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Deferred Compensation, or Deferred Comp, is a form of retirement plan not covered by ERISA or any of the established retirement plan rules such as apply to 403(b)s, 457(b)s or IRA plans. In 2005 after the crash of Enron and Global Crossing, Congress created Sec. 409(A) that defines how salary may be deferred and rules for distributions. But unlike qualified plans (401(k) or Profit Sharing), there are no contribution limits and no non-discrimination requirements. But like 'normal' retirement plans, the idea with deferred comp is to defer the salary from high tax rate years to lower tax rate years of retirement...at least that's the idea.

The key difference with a deferred comp plan is the employer must actually 'own' the contributions that are usually made to what is called a Rabbi Trust, where the funds are held until the employee separates and then mandatory distributions over a fixed number of years usually follow. The employee can have no rights of ownership or any form of promise to pay. In IRS speak, the trust must be written to show a 'substantial risk of forfeiture', meaning the assets belong to the employer and so may be subject to paying company creditors (usually in bankruptcy) or even be withheld at the discretion of the employer (this has actually happened when a former exec said something negative about the company after leaving it).

Non-profit 457(b) and government 457(f) plans are very similar to 409(A) deferred comp plans.

BruceM
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