Deferred Compensation: Making a Comeback?

May 16, 2012 - PRLog -- A plan that used to be popular primarily with Fortune 500 companies is experiencing a resurgence of late in private, middle market businesses throughout the country.  Deferred compensation has gained popularity with a whole new audience and is now an important piece in many companies’ rewards strategy.  A webinar entitled “Why Deferred Compensation is Making a Comeback,” will explain this new found interest in deferral plans and how they are helping many growth-oriented organizations.  The webinar is sponsored by The VisionLink Advisory, a national compensation consulting firm headquartered in Irvine, California.

“With the introduction of 409(A) a few years ago, many business leaders assumed deferred compensation had died and so they stopped considering it as a planning tool,” explained Tom Miller, VisionLink’s founder and president.  “However, now companies are discovering that the new legislation helped to clarify a lot of things about these plans and, in some respects, made them safer to implement.  A lot of things that were left ‘undefined’ before have been clarified through that regulation.”

409(A) is a piece of legislation passed in the wake of the Enron scandal in the last decade.  It clarified when distribution elections have to be made in a deferral plan, how and when those distributions can occur and many other related issues.  Once announced, it took a few years to fully define each piece of the statute, making a lot of companies leery about implementing such a plan.

“All of that clarification has been completed now,” commented Miller.  “So there’s no need for companies to postpone consideration of this kind of program or have ‘fear of the unknown.’  It’s now known!”

Deferred compensation allows contributions by a company to a plan on behalf of a select group of management or highly compensated employees in anticipation of a payout sometime in the future.  Those contributions can be made by the company as a kind of long-term incentive arrangement for key producers or as a deferral of income by participating employees, or both.  Often, deferred compensation is used as a “mirror” program to a 401(k) plan enabling highly compensated employees to overcome the contribution restrictions associated such plans.  Income that is contributed to a “non-qualified” plan such as deferred compensation is not taxable to participants until it is distributed.  As a result, participants enjoy current tax savings as well as tax deferred growth on investment earnings—when investment or interest crediting options are offered.

“We see more and more companies these days using deferred compensation as a strategic performance tool, not just an executive retirement plan,” Miller offered.  “Those businesses allow employees to contribute their own funds to the plan but then add a company match that is tied to some kind of results expectation.  They put a vesting schedule on the company contribution so the employee has to stay and perform to receive it all. That takes full advantage of this tool as a recruiting, retention and productivity device. It can be very effective if done right.”

Miller will be conducting the webinar on May 22 and plans to discuss these and many other reasons why deferred compensation is regaining favor with growth companies.  The broadcast is free. Interested parties can register at: http://www.vladvisors.com/business-growth-strategies/even....