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Simple English definitions for legal terms
nonqualified pension plan
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A quick definition of nonqualified pension plan:
A nonqualified pension plan is a type of retirement savings plan where an executive or highly paid employee can contribute additional funds to increase their retirement benefits. This plan is not subject to the same federal laws as qualified pension plans, which offer tax benefits for contributions and investment growth. Nonqualified pension plans are typically offered to a select group of employees and are not funded by employee contributions.
A more thorough explanation:
A nonqualified pension plan is a type of deferred-compensation plan that allows executives to increase their retirement benefits by making additional contributions to the company's basic plan. This plan is not subject to the same federal laws as qualified pension plans, such as the Employee Retirement Income Security Act (ERISA), and does not offer the same tax benefits.
For example, a CEO may have a nonqualified pension plan that allows them to contribute an additional $50,000 per year to their retirement benefits. This plan is not available to all employees and is only offered to a select group of executives.
Nonqualified pension plans are often used as a way to attract and retain top talent in a company. However, they are not as secure as qualified pension plans and may be at risk if the company experiences financial difficulties.
nonqualified deferred-compensation plan | nonqualified stock option