There are several reasons why executives prefer to defer payment of current compensation under a nonqualified deferred compensation plan, reports Orrick.  For example, some executives do not need the compensation to be paid currently, and so a nonqualified arrangement helps to manage cash flow over the course of one’s employment period.  Another reason is that the deferral arrangement permits the executive to defer tax recognition of the compensation until a time when the executive is in a lower tax bracket (e.g., at or after retirement).  But a more compelling reason is that there is an inherent tax advantage in the deferral mechanism itself.  That is particularly evident in times such as these, when combined federal, state and local income tax rates for individuals (including the new 3.8% tax on net investment income) are relatively high.

via High Tax Rates Spur the Allure of Deferred Compensation | Orrick, Herrington & Sutcliffe LLP – JDSupra.

Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.