Non-Qualified Deferred Compensation
"Non-qualified" deferred compensation is simply a retirement plan which is not eligible for the tax benefits of "qualified" pension and profit-sharing plans. For example, it is never possible in a non-qualified deferred compensation plan for the employer to get a deduction currently without current taxation of the employee. However, unlike qualified plans, non-qualified plans generally may be "discriminatory" in that employees can be covered on a selective basis.
The employer can initiate a deferred compensation plan in an effort to lock in key employees with attractive fringe benefits. No salary reduction is involved; part of the employee's total compensation package is simply deferred until a later date. The 'inducement-to-stay' plan or "golden handcuff" is most beneficial for an employer in an industry dominated by a few key individuals, or in a company in which profits are heavily dependent upon one or more key employees. This type of plan is sometimes referred to as a "supplemental income plan", a "supplemental executive retirement plan" (SERP), or a "salary continuation plan".