Can you defer an employees salary?
napalandtrust
3 Posts
Hello,
Does anyone know the rules regarding deferring an executives salary from one year to another? Is there an agreement that needs to be signed to do it? Does anyone have an agreement they would be willing to share?
Thank you!
Comments
I take it that you mean beyond the basic 401(k) plan?
I strongly suggest finding a consultant that works with non-qualified executive compensation/deferral plans. I did when I was with Mercer years ago. There are definite tax laws (which have changed since I did consulting) that impact deferred compensation..most notably, the money has to be "forfeitable" and as soon as it is vested, it has to be taxed. There are also laws on interest rates, etc. There are also rules on distributions and having to elect them a certain # of years out....etc. And the assets are subject to general creditors (unlike 401k assets for example).
Most plans are setup in response to the employer failing 401(k) nondiscrimination tests...and HCEs having to get refunds...not getting to put enough $s into the 401k plan.
This is not a do-it-yourself-project by any means. Nor are the agreements going to be standard. The ones I did had different elections based on type of compensation (wages, bonus, etc). I spent quite a few Christmas holidays implementing the new elections each year. It was not an easy process. And the tracking of those elections was by year....which our systems were not setup to handle easily....oh this is bringing back memories....the last time I worked on an exec def plan was in 2000..... I would suggest Mercer because I know they had a whole group setup after I left, but I think it was out of the Seattle office.
I am a member of another board called "benefits link". They have different forums for benefits and have one specifically for Exec Deferral Plans. Might be a good source of information. You should be able to find it by using google...it popped up first when I searched.
I'm not as familliar with this as I would like to be, being an executive who never feels like defering pay is a good idea.
Although this type of thing is clearly something that is done, and I'm merely thinking out loud, one thing I would try to steer clear of is state requirements under payday laws. Of the various types of compensation, salary would be the one covered and it's not even clear to me that you can voluntarily defer salary pay under some state payday laws, even if the fed allows it. These laws are normally written to prevent employers from entering into these types of arrangements because there's no real way to tell if the employee is entering such an agreement voluntarily.