Question

When may an employee avoid receipt of taxable income in a funded nonqualified deferred compensation plan? When the plan is unfunded When there is no constructive receipt When there is a substantial risk of forfeiture. When there is no economic benefit.

Answer 1

Nonqualified Deferred Compensation plans aren’t is not like a saving letting employees defer a portion of their salary into a separated account held in trust and doing investments. NQDC plan is an agreement between employee and employer to defer a portion of your annual income until a specific date in the future.

401(k) plans often are inadequate for high earners. Although Deferring this income provides one tax advantage but unlike 401(k) plans, employee can’t take loans from NQDC plans, and is not allowed to roll the money over to retirement account.

Compensation deferred into the NQDC is the employer's general assets and as such any the amount is subject to any loss of the employer.