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.