If you are a high-earning executive, you may be familiar with the concept of a nonqualified deferred compensation (NQDC) plan. An NQDC plan is a type of retirement plan that allows key employees to defer a portion of their compensation until a later date, typically after retirement. In this article, we’ll take a closer look at one of the key documents that governs an NQDC plan: the NQDC agreement.

What is an NQDC agreement?

An NQDC agreement is a contract between an employer and an employee that outlines the terms of the deferred compensation plan. It includes details such as the amount of compensation that will be deferred, the timing of payments, and the circumstances under which the deferred compensation will be paid out.

The NQDC agreement is an important document because it governs the relationship between the employer and employee with regard to the deferred compensation plan. It outlines the rights and responsibilities of each party, and it provides a framework for resolving disputes that may arise.

What are some of the key terms included in an NQDC agreement?

Here are some of the key terms that you might find in an NQDC agreement:

– Deferral election: This is the employee’s decision to defer a portion of their compensation into the NQDC plan. The NQDC agreement will specify the amount that may be deferred and the time period during which the deferral election must be made.

– Distribution election: This is the employee’s decision about how and when the deferred compensation will be paid out. The NQDC agreement will specify the timing and form of payment options available to the employee.

– Vesting schedule: This is the period of time over which the deferred compensation becomes fully vested. The NQDC agreement will specify the vesting schedule, which may be immediate or may occur over several years.

– Change in control provisions: These provisions govern what happens to the deferred compensation if the employer is acquired or experiences a change in control. The NQDC agreement will specify how the deferred compensation will be paid out in the event of a change in control.

Why is it important to have an NQDC agreement?

Having an NQDC agreement in place is important for both the employer and the employee. It provides a clear understanding of the terms of the deferred compensation plan and helps to avoid misunderstandings or disputes. An NQDC agreement is also important for tax purposes, as it ensures that the deferred compensation is properly reported and taxed.

In conclusion, if you are a highly compensated executive and are considering participating in an NQDC plan, it is important to understand the terms of the NQDC agreement. As a professional, I can tell you that understanding the terms of the agreement is essential to make informed decisions about your retirement planning. Be sure to review the agreement carefully and seek advice from a financial advisor or tax professional if necessary.