On Tuesday we talked about non-qualified deferred compensation. Non-qualified deferred compensation plans are best used for employers who would like to provide benefits to a select group of employees, specifically key employees and high earners. Qualified plans cannot provide a sufficient retirement resource for key executives who earn in excess of the covered compensation limit of $255,000. Deferred compensation plans lose the tax advantages that are provided to qualified plans. In order for a deferred compensation plan to be tax deferred, the employee must have substantial risk of forfeiture and must have not constructively received the funds. A deferred compensation plan can be funded or unfunded. Two types of funded deferred compensation plans are secular and rabbi trusts. The major differences between the two is that a secular trust does not typically have substantial risk of forfeiture and a rabbi trust is subject to the employers creditors in the event of bankruptcy. The other types of deferred compensation plans are as follows: phantom stock plans, supplemental executive retirement plans, salary reduction plans, and 401(k) WRAP plans. A phantom stock plan does not actually issue stock. The employer gives fictional shares to key employees and at the time of valuation, the employee will receive the increase in value. A supplemental executive retirement plan provides additional benefits to executives during retirement. A salary reduction plan reduces an executives salary now (when their earnings are higher) and defers their compensation to retirement. A 401(k) wrap plan is used for executives who maximize their 401(k) deferral and would like to defer additional capital into a retirement account. We also discussed the different types of stock options: incentive stock options, non-qualified stock options, and restricted stock. The difference between incentive stock options and non-qualifed stock options are that incentive stock options have specific holding periods and receive preferential tax treatment.
On Thursday we went over the various fringe benefits that an employer can offer to its employees. A fringe benefit is defined as a form of compensation where a benefit other than customary taxable wages is provided to an employee for the performance of services for an employer. We learned how and when to tax these benefits.
On Thursday we went over the various fringe benefits that an employer can offer to its employees. A fringe benefit is defined as a form of compensation where a benefit other than customary taxable wages is provided to an employee for the performance of services for an employer. We learned how and when to tax these benefits.