Employees leaving their jobs are often surprised to discover they aren’t entitled to the full balance of their company plan account. The reason is that some plans impose a vesting rule on certain types of contributions.What do the vesting rules mean? They tell you how much of your plan benefit you actually own and cannot be taken away from you. If you’re fully vested, you’re entitled to your entire benefit. If partially vested, you only get a portion of your benefit.
Now that it looks like they’ve been spared from elimination in the most recent version of tax reform, it’s worth taking a look at nonqualified deferred compensation plans (“NQDC plans”). NQDC plans take different forms, including salary reduction arrangements, bonus deferral plans, excess benefit plans, and supplemental executive retirement plans. For some clients, this may be a way to defer a greater percentage of income than under traditional qualified plans. It is also a way to attract and retain key employees. These types of plans will be paired with traditional qualified plans to maximize tax savings.
