A Pre-Tax Compensation Deferral Plan is a nonqualifed plan that allows a company to provide a means for its highly compensated employees to postpone current income to a future date. The concept is similar to that of a 401(k) plan in that employees elect an amount of their current income they would like to defer into an account for future use, and an account is created in the employee’s name with interest credited based upon the plan design. However, there are some major differences. With a Pre-Tax Compensation Deferral Plan, the company is not hemmed in by requirements for “qualified” plans such as minimum contributions for all employees with two years of service, lower benefits for highly compensated employees, and higher tax penalties on distribution to employees.

A Pre-Tax Compensation Deferral Plans allow a company to design a plan for their highly compensated employees that is customized to meet their specific needs.

EBS provides a thorough process in assisting in each of the following decision areas:

  • Plan year
  • Eligibility criteria for participants
  • Sources of deferrals
  • Deferral limits – maximum and minimum
  • Deferral as dollar amount or percentages
  • Length of deferral election
  • Enrollment period(s) – for each eligible source of deferrals
  • Account types available to participants
  • Company contributions (match)
  • Vesting in match
  • Options for earnings on deferrals
  • Elected withdrawal before retirement (college education)
  • Early distribution due to financial hardship
  • Retirement payment options
  • Payments upon termination of employment
  • Payments upon death of participant
  • Beneficiary designations
  • Disability provisions
  • Restoration of other benefits
  • Change in control provisions
  • Benefit security
  • ERISA compliance
  • SEC registration