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Deferred Compensation Plan

Deferred Compensation Plan

Definition

An arrangement between an employee and his or her employer to defer some portion of the employee's current income or salary until a specified future date. Deferred compensation plans can be a qualified or unqualified plan as respects Internal Revenue Code deductibility and other tax benefits. Wages earned in one period are actually paid in a later period. Life insurance is a popular method to fund deferred compensation plans, as deferred amounts can be used to pay premiums on cash value life insurance. The cash value can then be available at retirement to supplement other income, or, if the insured dies before retirement, the insured's designated beneficiary would receive the insurance policy's death benefit.

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