nonqualified deferred compensation plan

An unfunded compensation arrangement, frequently offered to executives, that defers compensation and the recognition of its accompanying taxable income to a later date.

• It is termed “nonqualified” because it does not qualify for favorable tax treatment under IRC (26 USCA) § 401(a). The plan avoids the restrictions on qualified plans, esp. the limits on contributions and benefits and rules against discrimination in favor of highly compensated employees. [Cases: Internal Revenue 3596.]

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